Regional stability and energy security remain in a complicated state, with unpredictable developments that will depend on the severity of the winter and the gravity of the effects resulting from Moscow's weaponisation of its energy leverage. Russia's actions to politicise gas exports in response to EU sanctions and solidarity with Ukraine have led to a drastic reduction in Russian natural gas consumption in Europe.
According to forecasts for 2030, Russia is at risk of losing half of its current share of global gas exports, from 30% in 2021 to 15% in 2030. Against the background of a roughly 80% reduction in gas supplies to the EU (from 40% of EU imports in the past to 9% today), Russia will develop a significant dependence on Asian markets, especially China, where it sells gas at discounts of up to 50%. The filling of gas storages in Europe to more than 90% of their capacity due to the massive importing of liquefied gas reduces the technical possibility of importing new volumes.
In addition to ensuring its own energy security, the EU must in no way ignore the energy problems of the new Eastern Partnership EU candidate states – Ukraine and Moldova. From now on, their security is a shared responsibility with the EU, and their energy vulnerabilities become a priority as temperatures drop.
Russian actions to de-electrify Ukraine: effects and risks
Currently, Ukraine has focused its attention and resources on restoring control over the territories occupied by Russian forces in the Kherson region, where the chances of obtaining a U-turn in the situation are more favourable. On the other hand, Russia has reoriented its military attacks towards the destruction of Ukraine's critical infrastructure, with an emphasis on electrical installations (at least 45 assets), water purification systems, sanitation, etc. The goal of these attacks is to cripple the Ukrainian economy through forced de-electrification, increasing material costs and causing new waves of refugees or preventing their return. By diversifying and multiplying the crises to which Ukraine is exposed internally, the Russian army wants to exhaust the limited resources available to Ukraine to weaken the counter-offensive against Russian positions.
Under conditions of acute energy deficit, caused by the loss of 30-40% of electricity production capacities, the Ukrainian authorities began to test the technical conditions for importing electricity from Slovakia. Just about four months ago, Ukraine was able to export electricity to Romania (50-100 MW) and Slovakia (50 MW). In 2021, Ukraine's electricity exports went to Moldova, Hungary, Slovakia and Romania. As of October 2022, Ukraine becomes a net importer of electricity for the first time since independence. Until the energy system is repaired, Ukraine will be vitally dependent on the European electricity market, from where it can import energy thanks to the synchronisation of transmission networks in March. However, imports of electricity from Europe will inevitably affect the tariffs for final consumers and the businesses, given the spot market prices, whose variation in the daily ahead price can range between 145 MWh (Slovakia) and 166 MWh (Romania). This will leave its mark on inflation, which could exceed 30% by the end of 2022.
The start of the heating season, most likely already in November, will put the Ukrainian energy system in difficulty. Precisely during this period, the Vladimir Putin regime may decide to stop the last pipeline gas deliveries of some 42.4mn cubic metres per day, made through the Ukrainian gas system.
Such a step may have a double negative impact on Ukraine. On the one hand, limited access to energy sources (physical and commercial restrictions) for heating can cause a humanitarian crisis of significant proportions in the territories controlled by the Ukrainian forces, with cascading effects on the combat capacity of the armed forces.
On the other hand, the complete disconnection of gas supply through Ukraine to the EU may generate a new wave of shocks in the European energy market, with political and socio-economic repercussions. In October, inflation in the Eurozone reached 10.7% and the risks increase even more in a context of geopolitical and energy market instability.
The dynamic cap on the price of natural gas (and oil) is the solution that the EU is working on at a fast pace to reach a common denominator in November (when the fourth meeting on this topic will take place). However, it is not excluded that the application of such interventionist measures will produce negative effects, such as an increase in the price of gas or the impossibility of accessing it.
Russia's tactics in relation to Moldova: between the position of collateral victim and the Transnistrian lever
Russian actions aimed at de-electrifying Ukraine, through premeditated missile and drone strikes, have immediate repercussions on Moldova, which as of October obtained about 30% of its electricity imports from Ukrainian suppliers. Since October 11, Ukraine has suspended its export of electricity to Moldova. To cover the electricity deficit, the Moldovan authorities resorted to the help of Romania, which modified its legislation to be able to supply electricity at a price of €90/MWh, which is lower than the market price. Subsidising the price of electricity sold to Moldova is not only a manifestation of solidarity in the context of the pressure exerted by Russia, but also a pragmatic policy towards Moldova, where more than third of the population already has Romanian citizenship (more than 1mn people).
In addition to the collateral effects to which Moldova is exposed due to the Russian aggression against Ukrainian energy infrastructure, Russia exploits the conditions related to the delivery of natural gas. Given Moldova's dual dependence on Russian gas and electricity produced from Russian gas in the Transnistrian breakaway region, the lack of consistent gas flows to Moldova ramifies the consequences of the energy crisis, which began in 2021.
First of all, citing false problems related to the transportation of gas through Ukraine, Gazprom reduced the volume of deliveries to Moldova by 30% to 5.7 mcm per day. This represents only 70% of the gas contracted by the Moldovan operator Moldovagaz (50% of the shares belong to Gazprom). As a result, the separatist region has reduced the production of electricity, which the Cuciurgani power plant exports to the territory of Moldova controlled by the constitutional authorities.
Against the background of the increased gas deficit of about 40 mcm, the Tiraspol administration announced that the electricity supply to the rest of Moldova will be cut by up to 27%. This means that Moldova will have to seek replacement for more than half of the electricity imported from the Transnistria region, which accounted for 70% of total electricity imports. As a result, Moldova started buying additional electricity from Romania, but already at the market price of the Romanian Electric Power Market Operator (OPCOM) – €132/MWh. The ability to purchase electricity from Romania is due to Moldova's accession to ENTSO-E, together with Ukraine in March.
Although the electricity purchased in Romania guarantees energy security, it is almost twice as expensive as that sold by the Transnistria region, which does not pay for the gas used to produce electricity, accumulating new debts on top of existing ones (some $7bn). In other circumstances, the purchase at market prices from Romania would allow the abandonment of electricity from the Transnistria region, which continually exacerbates the debt problem and creates dependency and unpredictability. The current energy and geopolitical crisis requires more cautious approaches towards the commercial and political price related to the purchase of electricity.
The second problematic aspect refers to the old debt of the constitutional territory of Moldova, which would constitute about $700mn, accumulated in the period 1994-2016.
According to the contract signed by the current Moldovan government in October 2021, the debt situation was supposed to be resolved in the spring of 2022 and involved an international audit to verify the authenticity of the debt. Although it clarified the payment of the debt at the end of October to the maintenance of the contract, Gazprom confirmed gas deliveries for the month of November. However, Russia can decide at any time to break the contract that the Moldovan authorities consider advantageous. Due to the price formula, the current contract with Gazprom offers a price some $400 lower than the European market ($821.5 compared with €1,200 per 1,000 cubic metres).
One factor that may cause Russia to abandon the contract may be the result of the audit carried out by the companies Wikborg Rein Advokatfirma AS (Norway) and Forensic Risk Alliance & Co. (UK), which are due to present their results only in January 2023 (around eight months after the period originally agreed with Gazprom).
Last but not least, in addition to the reduction in the volume of gas and the effect on electricity supply, but also the risks arising from the non-resolution of the historical debt, another dimension of the ramified energy crisis consists of the disputes between the government in Chisinau and the Tiraspol administration.
Moldova needs about 120 mcm of gas for the month of November. Of this total, some 41 mcm may be replaced by fuel oil for the production of thermal energy, another 54 mcm will be imported under the contract with Gazprom, and the state company Energocom from other markets will purchase the remaining 23 mcm. In this regard, a contract was recently signed with the Bulgarian transmission network operator (Bulgartransgaz). Furthermore, Moldova has about 90 mcm of natural gas in the form of strategic reserves, enough for about two weeks in case Russia cuts off deliveries.
The authorities want to stop the increase in energy prices, which is inevitable if electricity in the Transnistria region is not supplied at full volume. Otherwise, the anti-government protests orchestrated so far by the Shor Party may expand and gain legitimacy among a larger number of citizens, who have so far avoided them for credibility reasons. Under recently introduced US sanctions, Ilan Şor and his party are qualifiable as Russian agents (OFAC, October 2022).
In addition to this, other kleptocratic groups, controlled by the fugitive oligarch Vladimir Plahotniuc, also sanctioned by the US, who promised to return to Moldovan politics, could also join the protests.
In addition, there are opposition parties inside and outside Parliament (at least eight entities) that oppose the war (not Russian military aggression against Ukraine) and mobilise to exert political pressure on the government.
In this fragile political context, the scope of mutual blackmail increases in which the Chisinau government exponents warn that it will reduce the volume of gas to the Transnistria region if it does not supply more electricity. For its part, the Tiraspol administration suggests direct negotiations with Moscow and refuses to co-ordinate energy consumption with Chisinau. At the same time, the breakaway region demands more gas, which it cannot provide for reasons of security and scarcity, especially if Moldova is going to buy it at market prices.
Moldova's energy security is under geopolitical (weaponisation of energy levers), financial (accessibility of prices for natural gas and electricity from non-Russian sources) and security pressure with respect to critical national infrastructure. This last aspect becomes imperative, given the recent incidents caused by Russian air strikes against Ukraine, which after Ukrainian missile defences attacked Moldovan territory, causing an incident in Naslavcea.
In lieu of conclusions…
Given the enormous threats that the military failures in Ukraine pose to the political regime in Moscow, the winter of 2022-2023 represents a strategic moment for Russia, in which its energy tools could be used to their full potential to apply additional socio-economic and political pressure on the national governments of the EU countries.
In parallel, Russian attacks on Ukraine's energy infrastructure continue, representing a new facet of the "war of attrition". Thus Russia has revealed its intention to force peace negotiations, which would be an indirect form of Ukraine's capitulation to Russian aggression.
The aggression against Ukraine also indirectly targets Moldova, which thus becomes a collateral victim. In addition, Russia is taking advantage of the energy sector to put pressure on the Moldovan authorities, which face serious dilemmas due to their double dependence on Russian gas and electricity supplied by the breakaway region.
Denis Cenusa is a political scientist, researcher at the Institute of Political Sciences at Liebig-Justus University in Giessen, Germany. This comment first appeared on IPN here.