Ukraine is likely to keep accumulating debt for Russian gas supplies, especially after Gazprom announced it will cancel a gas price discount for the former Soviet republic. Ukraine said it would not be able to pay in full for its February supply. But Russian Prime Minister Dmitry Medvedev warned that “those who don’t pay for goods supplied must understand they will face consequences and may lose shipments on easy terms”.
Meanwhile, Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp, predicted that six months from now Gazprom, which controls nearly one-fifth of the world’s gas reserves and supplies more than half of the gas Ukraine uses each year, is going to keep the gas flowing through Ukraine to Europe and to Ukraine.
“Even if Ukraine is unable to pay, I don’t think Gazprom will stop its supplies to Ukraine because of the risk to Europe. My guess is that Ukraine will be accumulating unpaid bills,” Kokin told New Europeon 4 March. “It will try to pay but the accounts payable will probably built up.” He said Ukraine will accumulate a total debt of possibly $5 billion six months from now, including the current debt of $1.55 billion, especially if Gazprom cancels the price discount.
Kokin said Gazprom will probably use Ukraine’s irregular payments as a pretext for cancelling the discount with prices climbing from $269 to probably $375 or even $400 for 1,000 cubic metres.
Asked if Gazprom could get a stake in the Ukrainian transit pipeline, Kokin said ownership “would not prevent Ukraine from cutting supplies to Europe in a hypothetical worse case catastrophic scenario”. “I don’t see much benefit in owning Ukraine’s pipeline,” he added.
Gas wars between Russia and Ukraine in 2006 and 2009 disrupted gas supplies to Europe. Russia supplies around 30% of Europe’s gas.
Jeff Mankoff, fellow and deputy director of the Russia & Eurasia Program at the Center for Strategic and International Studies (CSIS) in Washington DC, told New Europe on 3 March that this time the Europeans are better prepared than they were when these issues came up in the past. He noted that Europe certainly has significant storage capacity that could keep it supplied for months. “The other thing is that it’s March now rather than January so the weather is warmer -there’s going to be less demand. The EU seems in a better position to deal with the consequences of cut off right now, but this doesn’t do anything for Ukraine,” he said.
Mankoff said that potentially already there could a gas crisis underway. “This is already more serious than anything that’s happened in the past on the gas front so going to gas cut offs would represent an escalation from where we are right now. But it’s a step that has already happened a couple of times in the past and I don’t think it’s something there would be much hesitation to undertake it this time around,” Mankoff said.
Ukraine is at the centre of a global political battle after a revolution ousted the country’s president Viktor Yanukovich.
Russian troops are on the ground in Ukraine’s Crimea region, where Russia has many interests. But gas is not one of them. While the peninsula is using some gas, the only possible large scale implication could be a new division of promising offshore fields in the Black Sea if the Crimea claims exclusive rights for offshore fields, Kokin said. If Ukraine keeps Russian gas flowing to Ukraine, Crimea might get a discount in contrast to the rest of Ukraine, he added.
More importantly, Crimea hosts the Russian military’s Black Sea Fleet and is the only region in the country where ethnic Russians are a majority (60% of a population of 2 million).
Russian President VladimirPutindefied PresidentBarack Obama’s warning not to intervene in Ukraine’s Crimea region but there’s little the US can do. “There are a couple of concrete things that can be done and the decision has already been taken to cancel theSochi G8 summit,” Mankoff said. “There’re financial sanctions, individuals in particular - whether that’s done under the auspices of the (US) Magnitsky Act, which is something that Senators have talked about, or whether it’s done for its own shake – that’s definitely a possibility. There're a number of trade and economic arrangements that we are scraping. There’s a naval co-operation agreement that the US is putting on ice right now,” he added.
Asked if US-Russia relations have been irreparably damaged, Mankoff said that for the next year or so, maybe for the rest of the Obama administration, he’s guessing there’s not going to be much to be done at this point.
“The problem is the two countries still have a lot of areas where they are sort of fated to work together and that’s not going to change. But I think what it means is that there’s not going to be any real emphasis on moving forward, on building new areas of co-operation,” he said. “I think actually we’re beginning to see and probably step up efforts to isolate Russia, to punish it financially and economically so there is going to be quite some time before we’re back in a situation where we’re talking about what can we done to improve the relationship,” Mankoff added.