Energy, Europe, Gas, Geopolitics, News

Russia-Ukraine ‘Gas War’ Escalating as Europe Braces for Winter Supply Disruptions

Concerns are mounting that Moscow may turn off the gas taps on the pipeline bound for Ukraine in the depths of winter. This is despite the fact that Ukraine has on Wednesday (27 November) won a legal battle against its large neighbor in a perennial “gas war”, which has been closely watched in Europe fearing more wintertime disruptions of natural gas supplies. Court of Appeal in Sweden upheld ruling issued by the Stockholm Arbitration Court in March 2018 that ordered Kremlin-controlled gas monopolist Gazprom to pay more than $2.5bn to Ukraine’s Naftogaz over a contractual dispute involving the supply and transit of gas.
The Ukrainian side celebrated, with Naftogaz’s boss hailing the fourth anniversary of Ukraine’s decision to start buying gas from the West instead of Russia. A recent, first-time purchase of liquefied natural gas (LNG) from the United States has also been highlighted as a watershed moment. “There will be American liquefied natural gas in Ukraine!” the US embassy in Ukraine tweeted that day, referring to the arrival of the LNG carrier’s as “another step in helping Ukraine achieve energy independence”. However, unsurprisingly, even the buyer – Energy Resources of Ukraine (ERU) – is clearly cautious about any long-term supply of American LNG because, as ERU’s managing partner Yaroslav Mudryi explains, “so far, it is hard to talk about long-term contracts on LNG supplies to Ukraine and about the purchase of any significant amounts.”
Some experts express doubts as to what extent Ukraine’s victories in the “gas war” can be seen as resolving the country’s long-term geopolitical dilemma. Ukraine may yet end up losing the “gas war”, as Moscow secures alternative routes of gas transit to Europe, while cash-strapped Kyiv’s new sources of gas supply are more expensive. There is a link between Ukraine and Russia that makes them uncomfortably dependent on each other – it is a network of Soviet-era pipelines that serve to deliver Russian natural gas to Europe, serving as pillars of the Kremlin’s economic might and earning Kyiv about three billion dollars in fees only in 2018.
Gazprom in mid-November offered to extend the existing contract with Ukraine for a year, provided Naftogas dropped some $22bn of lawsuits, an offer that Ukraine’s energy minister, Oleksiy Orzchel, immediately called the offer “unacceptable”. Naftogaz said it wanted the new contract to include a fixed amount of gas to be transited via Ukraine – even threatening that Europe-bound Russian gas would instead be pumped into Ukrainian storage tanks. Hence, it hardly comes as a surprise that European customers are bracing for further escalation in this tug-of-war. “Everyone has full storage,” says Piotr Wozniak, CEO of Poland’s largest gas company, PGNiG, expressing concern over the possibility of a crisis on Europe’s gas market if no deal between Kyiv and Moscow is reached by the end of the year.

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