Russia, Ukraine escalate ‘gas war’ as Europe draws ‘map of fear’

Concerns are mounting that Moscow may turn off the gas taps in the depths of winter.

Gas Ukraine Europe - reuters
Russian-supplied gas travelling in Soviet-era pipelines through Ukraine to Europe could be at risk if Kyiv and Moscow do not agree a new deal by the end of the year [Karoly Arvai/Reuters]

Kyiv, Ukraine – Ukraine has won a legal battle against Russia in a perennial “gas war”, whose impact has had a literal chilling effect on parts of Europe with wintertime disruptions of natural gas supplies.

The description of Ukraine’s victory may sound dry and technical:

On Wednesday, Sweden’s Court of Appeal upheld the March 2018 ruling by the Stockholm Arbitration Court 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.

But on the Ukrainian side, the response was emotionally charged:

“Full victory! Ukraine is winning again!” Naftogaz’s executive director Yuri Vitrenko wrote on Facebook minutes after the ruling.

A day earlier, Vitrenko’s boss hailed the fourth anniversary of Ukraine’s decision to start buying gas from the West instead of Russia.

“Market mechanisms did what politicians could [only] achieve in decades – they deprived Ukraine of gas and political dependence on Russia,” Naftogaz’s CEI Andriy Kobolyev wrote on Facebook.

Energy independence

A recent, first-time purchase of liquefied natural gas (LNG) from the United States has also been celebrated as a watershed moment.

On November 20, a tanker with 90 million cubic metres of LNG purchased by the Energy Resources of Ukraine (ERU), a private trading company, arrived at a Polish LNG terminal.

“There will be American liquefied natural gas in Ukraine!” the US embassy in Ukraine tweeted that day, describing the ship’s arrival as “another step in helping Ukraine achieve energy independence”.

But even the buyer is cautious about any long-term supply of American LNG.

“So far, it is hard to talk about long-term contracts on LNG supplies to Ukraine and about the purchase of any significant amounts,” ERU’s managing partner Yaroslav Mudryi told Al Jazeera.

He declined to declare the price of the LNG he bought.

Unsurprisingly, some experts see Ukraine’s victories in the “gas war” as somewhat pyrrhic.

Kyiv may yet end up losing the war, as Moscow secures alternative routes of gas transit to Europe, while cash-strapped Ukraine‘s new suppliers are pricier, a Kyiv-based expert said.

“So far, [Ukraine’s] transit potential is decreasing, and new sources of gas supply are expensive,” Alexey Kushch of the Growford Institute, a think-tank, told Al Jazeera.

The triumph in the Stockholm court “is more of a ‘bonus’ victory that appeals to the public’s irrational feelings in a matter of rational economic gain”, he added.

Conjoined twins

There is a link between Russia and Ukraine that makes them uncomfortably dependent on each other – despite the 2014 annexation of Crimea, Moscow’s backing of separatists in Europe’s hottest armed conflict, mutual sanctions and severed economic ties.

The link is literal – it is a network of Soviet-era pipelines that carry Russian natural gas exports to Europe and serve as pillars of the Kremlin’s economic might.

Last year, Kremlin-controlled monopolist Gazprom pumped more than 200 billion cubic meters (BCM) of gas to Europe, with about 87 BCM transiting through Ukraine, earning Kyiv about three billion dollars in fees, a sizable sum for one of Europe’s poorest nations.

The proportion of Russia’s exports travelling through Ukraine was much higher in the 1990s, but Russia’s price increases, analysts say, were used as a political tool to draw increasingly pro-Western Ukraine back into Moscow’s political orbit, while accusations of theft and corruption eventually led to the “gas war” that made the two nations appear like conjoined twins who just cannot get away from each other.

In January 2006, Gazprom cut off all gas supplies and transit through Ukraine over non-payment and “diversion” of Europe-bound gas for Ukraine’s domestic needs.

A similar tug-of-war in 2009 led to a two-week drop in gas supply in 18 European nations in the dead of winter after Gazprom shut down Ukrainian transit. 

January 2020 may see part three of the disruption as a 10-year transit contract between Ukraine and Russia ends on December 31 with no sign of the two sides successfully negotiating a new deal.

Legal battles

“We are ready for constructive work and for gas transit via Ukraine and for gas supplies to Ukraine. With a significant price reduction – unlike the price consumers pay in Ukraine,” Russian President Vladimir Putin said on October 30.

Gazprom in mid-November offered to extend the existing contract for a year, provided Naftogas dropped some $22bn of lawsuits. One suit, asking for $5.2bn in damages over assets seized by Russia after Crimea’s annexation, is being considered by The Hague’s Permanent Court of Arbitration.


Ukraine’s energy minister, Oleksiy Orzchel, immediately called the offer “unacceptable”, while 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 as “gas of unidentified owner”, Naftogaz’s Vitrenko said on Facebook on Tuesday.

Meanwhile, European customers await the worst.

Poland’s largest gas company, PGNiG, has already expressed concern over the possibility of a crisis on Europe’s gas market if no deal is reached by the end of the year.

“Everyone has full storage,” Piotr Wozniak told a news conference on November 14 as he showed a map of storage centres in Poland, Germany, Austria, Czech Republic, Slovakia and Ukraine.

“We call it a map of fear, as we have not seen such storage levels for years,” he said

Even if agreed, the new deal may not last long.

Next year, Russia is hoping to complete Nord Stream 2, the world’s longest offshore pipeline, now being built in the Baltic Sea to circumvent Ukraine and transport up to 55 BCM of Russian gas to Germany – doubling the existing supply.

Washington has firmly opposed the project.

US Vice-President Mike Pence said in April that Germany would become “a captive of Russia” once the $11bn, 1,200-km (745.6-mile) project is operational. The White House pledged to sanction each company involved in the project, and US Secretary of State Mike Pompeo said the Kremlin used “energy as a lever of pressure on Europe”.

Germany, however, seems to be determined to become the biggest benefactor of Nord Stream 2.

“It will be getting cheaper Russian gas. It will lessen the risk of disruption of gas supply caused by the hybrid war between Russia and Ukraine,” Kyiv-based energy expert Hennady Ryabtsev told Al Jazeera. 

But the Kremlin may shoot itself in the foot if it decides to stop the gas transit through Ukraine.

“Apart from the cuts in the transit fees that go to [Ukraine’s] state budget, lower pressure in the transit pipeline jeopardises the reliability and uninterrupted operation of gas supplies to the Ukrainian customers in southern and eastern regions of Ukraine,” – the Russian-speaking, pro-Moscow parts of Ukraine – Ryabtsev said.

Source: Al Jazeera