Page 11 - EurOil Week 16 2022

EurOil POLICY EurOil

While shells explode, the

gas still flows

UKRAINE ALMOST two months into Moscow’s invasion, faster.
Ukraine continues to transit nearly a third of “We are more than ready to sacrifice all of our
The conflict seemingly Russian gas supplies to the EU uninterrupted. transit revenues if that means that Putin stops
has no bearing on gas This means that Kyiv is indirectly funding Rus- getting money from energy exports,” Vitrenko
flow via Ukraine. sia’s war against the Ukrainian people, by help- said. “That’s the biggest source of revenue for the
ing to facilitate the estimated $400mn of gas sales Russian state budget and basically what allows
that Russia makes in Europe every day. Putin to finance his killing machine. That’s why it
Gazprom pumped 57.3mn cubic metres of is of the utmost importance to have this embargo
Russian gas through Ukrainian territory on on R
April 21 – a similar amount to the average level Even so, Ukraine has also called for other Rus-
in April last year. Indeed, judging by the lack of sian export pipelines to be shut down including
disruptions so far, it would seem that both sides Nord Stream 1, which runs under the Baltic Sea
in the conflict are taking caution to avoid hitting to Germany. Closing this route would mean Rus-
any gas transit infrastructure. sia sending more gas via Ukraine, bolstering its
In spite of threats, Russia is reluctant to cut off revenues and negotiating power with Moscow.
gas supply to Europe, as doing so would deprive It is impossible to say whether Russian gas
its crippled economy of one of its largest sources transit via Ukraine will remain stable moving
of revenue, at a time when many of its other forward. The conflict could well escalate, and
exports including crude oil are facing disrup- whether by intention or accident, transit infra-
tions because of Western sanctions. structure could be taken out of action.
The EU, on the other hand, despite its lofty In such an event, Russia would be able to
ambition to cut Russian gas supply by as much as divert most gas supply to Europe to other routes
two thirds within a year, knows it cannot make including TurkStream, Nord Stream 1 and
any immediate moves to curb imports without Yamal-Europe. While a complete halt to Rus-
causing devastating economic fallout. Gas sup- sian supply would plunge Europe into economic
ply would have to be rationed, many industries chaos, shutting down Ukrainian transit would
would close overnight, and at worse, the bloc make markets tighter, but most countries would
could suffer rolling blackouts. not suffer shortages. A handful of countries
Ukraine, meanwhile, would prompt stern are extremely vulnerable, however, including
criticism from EU leaders if it took its own Moldova, which gets all its gas from Russia via
transit pipelines out of action. This could mean Ukraine.
Ukraine gets less military aid from Europe, and A total end to Russian gas supply is unlikely
could prompt the EU to ease its stance towards but not inconceivable. As previously noted, the
Russia, offering more compromises that Ukraine Kremlin has threatened to take such steps, and
would be comfortable with, in order to bring the may cut off individual buyers if they refuse to
conflict to a quicker end. adhere to its new rules on making payments
“Even inside of Ukraine it is very difficult to for gas to special accounts at Gazprombank,
explain,” Naftogaz CEO Yuriy Vitrenko told The which will convert the sums to rubles for pay-
Washington Times in an interview. “It’s almost ment to Gazprom. Meanwhile, some EU lead-
two months into the war. They’re killing inno- ers are pushing for an embargo on Russian gas.
cent people and you read these horror stories. The bloc has already banned coal imports from
But at the same time, we’re transmitting Russian Russia and has indicated it is looking to impose a
gas.” similar restriction on oil trade.
Ukraine stopped taking Russian gas for its The idea that the EU’s 27 member states will
own use in 2015, following the Kremlin’s annex- all be able to agree to a ban on gas supplies is
ation of Crimea in the previous year. But its own hard to imagine. While some countries includ-
gas supply would still be at risk, as most of the ing Lithuania, which has managed to wean itself
gas it purchases from traders in Hungary, Poland fully off Russian gas thanks to an LNG terminal
and Slovakia to supplement its domestic supply it opened in 2014, strongly back an embargo.
has in fact originated in Siberia and has already But Germany, Hungary, Italy and other mar-
passed through its own territory. This is not to kets with significant dependence on Russian
mention the transit revenues it receives from gas have urged caution. Instead, the EU is likely
Moscow, which amounts to $1.2bn annually. to pursue a more pragmatic strategy, of steadily
Despite the financial hit Ukraine would take, curbing Russian supply as long-term contracts
however, Kyiv is calling for European countries expire and alternative sources of gas become
to reduce their dependence on Russian energy available. ™

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