Page 7 - FSUOGM Week 05 2022

FSUOGM COMMENTARY FSUOGM

directly to Germany, Gazprom’s biggest cus- calculate but would almost certainly exceed the
tomer – but needs long-term contracts to make value of any short-term gains.”
this business profitable and viable. Taking the
long-term view, the Kremlin is uninterested in What if war broke out?
making a few extra bucks from the spot market While the Kremlin has repeatedly denied it has
in Holland during the recent soaring price for any intention of attacking Ukraine, what would
gas if it can lock in solid profits for the next 30 happen if Russia did invade is neighbour?
years. There is a high chance that the Druzhba
Despite its history with Ukraine, Gazprom (Brotherhood) gas pipeline would be damaged
and Putin have repeatedly insisted that Russia is or destroyed in a Russian onslaught. Even if only
a “reliable energy supplier.” Indeed, during this a smaller flare-up occurred, contained in the
winter Gazprom has scrupulously stuck to the already disputed Donbas region, there is a tan-
terms of all its supply contracts. And when it gle of gas pipelines nearby that could get caught
transited less than the 65bcm of gas it signed off up in the conflict.
on in a new transit deal with Ukraine in Decem- Given the Kremlin would try and sell this war
ber 2019 the Russian state-owned company sim- as a “local conflict” as both the US and Nato have
ply paid the transit fees for 2020. said clearly they will not send troops in to pro-
“Keep in mind that since the start of Sovi- tect Ukraine, then the Kremlin is likely to keep
et-German gas contracts in the early 1970s, the the gas flowing to Europe and make the clear
mind-set of the Russian side has been “meet the distinction between Planet Business and Planet
contract at all costs.” At one point, experiencing Politics, as bne IntelliNews has reported on many
some technical problems, the Soviets reportedly times.
even cut Leningrad off [from] gas for a few days That means ramping up supplies via the
in order to make sure the export contract was Yamal-Europe pipeline across Belarus and
fully filled,” says Smith. “Times change, of course, Poland from near zero now to 100% to help off-
and a couple of hiccups have been experienced set the loss of Ukrainian transit. Smith speculates
over the years, but I think this prioritisation is that Gazprom may even simply turn on Nord
pretty deeply embedded in Gazprom’s corporate Stream 2 without regulatory approval, which has
culture (although, obviously, decisions of such been ready to start operations at short notice for
magnitude would be taken in the Kremlin, not months already, as an emergency measure and
Gazprom headquarters).” just pay the fines later. Europe may even accept
Smith speculates that if Gazprom were to this decision simply to keep the lights on.
do the 2009 clash with Ukraine over again it Could LNG fill the gap? While LNG deliv-
would now choose to keep the gas flowing, eries provide yet another way to diversify away
as the decision to cut Ukraine off has already from Russian piped gas, the LNG business is still
done significant damage to its business and too young to make much of a difference. Gaz-
continues to cause major problems in getting prom sells between 180 bcm and 200 bcm a year
those crucial long-term contracts signed now, to Europe, which is equivalent to a third of the
13 years later. total LNG production. However, many countries
“I think Russia is extremely unlikely to pur- in Asia, such as Japan, are entirely dependent on
posefully cut Europe off from gas,” says Smith. LNG for their gas. Diverting enough of this gas
“I think the Kremlin is fully aware that such away to supply Europe – about half the total sup-
an action would have long-term consequences ply – would send LNG prices skyrocketing and
for Russia, the cost of which are impossible to cause a major energy crisis in Asia, says Smith. ™

Week 05 02•February•2022 www. NEWSBASE .com P7