Thursday, July 31, 2014


Ukraine

Explainer: Why This Russian-Ukrainian 'Gas War' Is Different From The Others

A man cooks on a gas stove in Donetsk, Ukraine.
A man cooks on a gas stove in Donetsk, Ukraine.
By Claire Bigg
Russia has halted gas supplies to Ukraine -- a major escalation of a dispute in which Russia's state-owned gas giant Gazprom is demanding that Kyiv settle its huge gas debt. But in many ways, what many have dubbed the third "gas war" between the two countries is different than previous disputes in 2006 and 2009. Here's why. 

This gas row is a lot more political:

The gas conflict is taking place against the backdrop of deadly fighting in eastern Ukraine between government troops and separatist insurgents widely believed to be supported by Moscow.

Relations between Moscow and Kyiv are at rock bottom; there have been suggestions on both sides to sever diplomatic ties. 

"It's about the existence of Ukraine, the nature of Ukraine, its integrity," says John Mitchell, an energy expert at the British think tank Chatham House. "These were not so much in question in the previous crises, which were more concerned with purely gas matters."

This time, energy issues and political considerations are closely intertwined:

The dispute flared when Moscow raised its gas tariffs by more than 80 percent after a popular uprising in Kyiv toppled Viktor Yanukovych, the Moscow-backed president. Yanukovych has since fled to Russia.

Ukrainian Prime Minister Arseniy Yatsenyuk says Russia's move is "not about gas" and is part of "a general plan for the destruction of Ukraine."

The European Union, which has sided with authorities in Kyiv and slapped sanctions against Russia over its annexation of Ukraine's Crimean peninsula and intervention in the country's east, is a mediator in the current gas negotiations between the two countries.

"The question of how far the European Union stands to defend Ukraine on gas depends to some extend on how far they are prepared to defend Ukraine on much larger issues," says Mitchell.

At least as far as Europe is concerned, Russia is more restrained:

Russia is treading more carefully than it has in past energy rows with its neighbor. Despite its tough stance on gas issues, it has avoided the kind of sweeping, inflammatory comments seen in previous crises.

The first 2006 dispute, in particular, was seen as a public-relations disaster for Gazprom, which was widely accused of using gas as a political weapon.

When the second gas crisis erupted in 2009, Gazprom actually hired Western PR consultants to manage its public response.

Experts say Russia is eager to convince Europeans that it is a reliable supplier and to avoid a major fallout with the European Union, a close trading partner.

For example, after an explosion hit a Ukrainian pipeline on June 17, Gazprom quickly stressed that the blast would not disrupt supplies to its European customers. 

According to Mitchell, "Russia is proceeding much more carefully to try to concentrate the problem on Ukraine, and not on Europe."

Moscow has sought to paint the dispute as strictly commercial.

On June 16, Gazprom head Aleksei Miller accused Yatsenyuk of spearheading Ukrainian efforts to describe the row as a "gas war."

Russia's strategy seems to have paid off: 

EU Commissioner Guenther Oettinger, who has brokered the gas talks, said on June 16 that Russia "is not using gas as a political weapon against the European Union." 

"The experience of the previous years was unsatisfactory for Russia as well as the European Union," says Mitchell. "Procedures were set up for communication between the European Union and Gazprom in case of threats of disruptions of this kind. There has been much better communication."

Europe is less at risk of supply disruptions:

The European Union, which gets 15 percent of its gas supply transported through Ukraine, was hit by shortages during the last two disputes.

This time, the bloc is better shielded from disruptions.

Gas storage units in the European Union are a record 65-percent full.

The warm weather also means demand for gas is currently low and potential cuts would be less disruptive than in 2006 and 2009, when the disputes took place in winter months.

"By all accounts, the European Union is more sheltered because it has more gas in storage. It's summer, there's more flexibility inside the European Union," says Mitchell.

In addition, gas supply contracts have been amended since the 2009 crisis. Gazprom is now responsible for getting gas all the way to the Ukrainian-EU border, instead of selling its gas to Europe on the Russian-Ukrainian border as in the past.

This could reduce the risk of Ukraine drawing on Russian gas destined for customers in Europe, as it did five years ago.

As Mitchell points out, Ukraine would be "extremely unwise" to siphon off European supplies this time around, considering the political support Europe has extended to Kyiv in recent months.

New infrastructure also means Ukraine's gas pipelines play less of a role than in previous energy crises.

If Ukraine starts drawing on Russian gas transiting to Europe, Gazprom has already pledged to increase the flow through the North Stream pipeline that runs under the Baltic Sea to Germany.

Russia completed the Nord Stream pipeline in 2011. Another project, the 2,400-kilometer-long South Stream pipeline, which would cross the Black Sea to reach Bulgaria and other EU members beyond has been on hold since Bulgaria suspended its participation in the project earlier this month.

Ukraine is also better prepared:

Ukraine's Naftogaz energy company says it has enough gas in storage to last until December.

Ukraine's enhanced ties with the European Union may help it offset a protracted Russian cutoff.

Germany's second-biggest utilities company, RWE AG, has been shipping gas to Ukraine from Poland since April. 

Slovakia and Hungary can also potentially supply Ukraine using so-called reverse flows that would carry gas further east to Ukraine.

"Currently it is possible for Ukraine to buy gas from Hungary and from Poland, starting from autumn," Sabine Berger, a spokeswoman for Oettinger, said on June 17. "It will also be possible for Ukraine or for Naftohaz to get gas from Slovakia."

Berger said these options were all "legally perfectly sound."

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