Well before Russia seized Crimea and started supplying arms to separatists in eastern Ukraine, the two countries shared a fractious relationship over the purchase and sale of natural gas. Ukraine sources more than half of its gas from Russia but, like many countries in Europe, has chafed over long-term, take-or-pay contracts that tied the price of gas to oil. Then, when things began to deteriorate earlier this year, Moscow nearly doubled the price of gas for Kiev. Ukraine refused to pay and ran up a sizable bill that remains unpaid. Russia insisted on moving to a prepaid plan, and then shut off gas supplies to Ukraine entirely earlier this summer.That’s where we stand now, but the bigger worry has yet to manifest itself. In many ways, the timing of this spat has been fortunate for Ukraine. Summertime is typically a period of low demand for natural gas; it won’t be until the colder winter months that the need to burn the fuel will really spike as Ukrainians heat their homes. In the meantime, Kiev has attempted to squirrel away what gas it does have in underground storage, and has also sought to secure “new” supplies of gas from its other neighbors. We say “new” because this strategy, to ask other European countries to reverse gas flows back into Ukraine, still ends up with Ukrainians burning Russian gas, albeit through new middlemen.Poland is one such country to divert Russian flows back into Ukraine, but this week it stopped doing so, accusing Gazprom of cutting down on supplies in an effort to stop these reversed flows. Gazprom denied these claims, and Warsaw has apparently resumed sending gas Kiev’s way. But the incident could be a harbinger of a cold winter not just for Ukraine, but for Europe more broadly. The NYT reports:
Ukrainian officials had hoped for the so-called big reverse. In that situation, Slovakia would have been able to reverse the flow of 30 billion cubic meters or 1.06 trillion cubic feet of Russian gas annually and solve Ukraine’s looming energy crisis.But many saw the big reverse as, no pun intended, a pipe dream. While European Union rules bar territorial restrictions when gas is resold, and Ukraine has signed an association agreement, Gazprom objects to having its gas redirected without its approval. European regulators are in the midst of an antitrust investigation of Gazprom that is examining this issue.Slovakia, a major thoroughfare for Russian gas heading to Italy and other points west, balked at the idea of a big reverse. Like Ukraine and much of Europe, Slovakia depends on Russia’s natural gas, so the Slovaks have been treading carefully, seeking to appease both the Russians and fellow members of the European Union.
There’s another worry on the horizon for Europe, in addition to Russian belligerence over these reverse flows. In the past, when Moscow has cut off Kiev’s supplies, the country has siphoned off gas meant for other European countries (roughly one third of Europe’s natural gas supply transits Ukraine). If this pricing dispute isn’t resolved, it’s reasonable to expect that it won’t only be Ukraine feeling the chill this winter.