Russia 'over 70%' likely to cut gas to EU this winter, says Ukraine's Naftogaz

By bne IntelliNews September 24, 2014

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The likelihood that Russia will cut winter gas supplies to Europe passing through Ukraine is “over 70%”, according to Andriy Kobolev, head of Ukraine's gas pipeline monopoly Naftogaz.  Russia has currently stopped gas supplies to Ukraine, because of what Russia claims are payment arrears. Ukraine is still shipping Russian gas to Europe via its pipelines, which transport around 80% of Russia's gas supplies to Europe. 

But Naftogaz CEO Kobolev warned that Russia is likely to completely halt supplies to Europe via Ukraine this winter. “I would say that the likelihood that this will be done is more than 70%," Kobolev said, speaking on national TV. According to Kobolev, Russia might do this in order to force the European Union to agree to full use of the Opal pipeline that connects Russia's Baltic Sea pipeline Nord Stream to the central European pipeline networks, thus bypassing the Ukrainian pipeline. Currently under the terms of the Third Energy Package, the EU has blocked Russia from full use of Opal. 

Russia's longer term goal in stopping European supplies via Ukraine would be to force the EU to agree to the construction of the South Stream pipeline, intended to transport Russian gas via the Black Sea to the EU, also bypassing Ukraine. Pressure from the EU has pushed Bulgaria to freeze its agreement to construction of the pipeline on its territory, as a response to Russian aggression in Ukraine. 

“Placing in question the reliability of the Ukrainian transit route, in fact blackmailing Europe, Russia might achieve the approval of these two projects," Kobolev said.

Ukraine is currently importing (Russian) gas from EU countries such as Slovakia and Poland, using its gas network in the reverse direction, to the irritation of Russian state-owned gas monopoly Gazprom, which has reduced supplies to countries supplying Ukraine. But Ukraine cannot source enough gas through reverse supplies and its own production to see it through the winter, Ukrainian officials have acknowledged.

In the past Russia has accused Ukraine of stealing Russian gas being shipped to Europe for its own consumption, and in 2006 and 2009 cut all gas supplies flowing via Ukraine in response to alleged Ukrainian theft. Ukraine's recently signed association agreement with the EU, which includes a security component committing Ukraine to foreign policy alignment with the EU, make any such alleged Ukraine interference with the gas shipment to the EU unlikely, say experts.

Ukraine is now looking for possibilities to sharply reduce gas consumption in the event that Russian supplies do not resume by the winter. The most likely move would be for Ukraine to reduce supplies to its gas guzzling chemicals industry. According to bne sources, Ukraine's massive chemicals producers consume as much gas together as the entire Ukrainian population. Most of the chemicals industry is in the hands of oligarch Dmitry Firtash, who is under house arrest in Austria while an extradition request to the US is being processed by the courts. Firtash remains politically influential however, because of his ownership of Ukraine's largest TV station Inter.

"If we do not acquire gas from Russia, we will need to significantly cut consumption, especially in the chemicals sector and industry," Ukrainian prime minister Arseny Yatsenyuk said at a government meeting on September 23, according to newswires. 

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