Page 4 - FSUOGM Week 17 2022

FSUOGM COMMENTARY FSUOGM

While shells explode,

the gas still flows

UKRAINE ALMOST two months into Moscow’s invasion, “We are more than ready to sacrifice all of our
Ukraine continues to transit nearly a third of transit revenues if that means that Putin stops
WHAT: Russian gas supplies to the EU uninterrupted. getting money from energy exports,” Vitrenko
Russian gas supply via This means that Kyiv is indirectly funding Rus- said. “That’s the biggest source of revenue for the
Ukraine and to Europe in sia’s war against the Ukrainian people, by help- Russian state budget and basically what allows
general remains stable. ing to facilitate the estimated $400mn of gas sales Putin to finance his killing machine. That’s why it
that Russia makes in Europe every day. is of the utmost importance to have this embargo
WHY: Gazprom pumped 57.3mn cubic metres of on Russia."
Despite the war, neither Russian gas through Ukrainian territory on Even so, Ukraine has also called for other Rus-
Gazprom nor its April 21 – a similar amount to the average level sian export pipelines to be shut down including
customers have acted in April last year. Indeed, judging by the lack of Nord Stream 1, which runs under the Baltic Sea
outside commercial disruptions so far, it would seem that both sides to Germany. Closing this route would mean Rus-
interest, and both sides in the conflict are taking caution to avoid hitting sia sending more gas via Ukraine, bolstering its
of the conflict seem to be any gas transit infrastructure. revenues and negotiating power with Moscow.
avoiding any disruptions In spite of threats, Russia is reluctant to cut off It is impossible to say whether Russian gas
to transit. gas supply to Europe, as doing so would deprive transit via Ukraine will remain stable moving
its crippled economy of one of its largest sources forward. The conflict could well escalate, and
WHAT NEXT: of revenue, at a time when many of its other whether by intention or accident, transit infra-
The odds that the EU will exports including crude oil are facing disrup- structure could be taken out of action.
agree an embargo of tions because of Western sanctions. In such an event, Russia would be able to
Russian gas seem slim. The EU, on the other hand, despite its lofty divert most gas supply to Europe to other routes
ambition to cut Russian gas supply by as much as including TurkStream, Nord Stream 1 and
two thirds within a year, knows it cannot make Yamal-Europe. While a complete halt to Rus-
any immediate moves to curb imports without sian supply would plunge Europe into economic
causing devastating economic fallout. Gas sup- chaos, shutting down Ukrainian transit would
ply would have to be rationed, many industries make markets tighter, but most countries would
would close overnight, and at worse, the bloc not suffer shortages. A handful of countries
could suffer rolling blackouts. are extremely vulnerable, however, including
Ukraine, meanwhile, would prompt stern Moldova, which gets all its gas from Russia via
criticism from EU leaders if it took its own Ukraine.
transit pipelines out of action. This could mean A total end to Russian gas supply is unlikely
Ukraine gets less military aid from Europe, and but not inconceivable. As previously noted, the
could prompt the EU to ease its stance towards Kremlin has threatened to take such steps, and
Russia, offering more compromises that Ukraine may cut off individual buyers if they refuse to Pull quote to go
would be comfortable with, in order to bring the adhere to its new rules on making payments
conflict to a quicker end. for gas to special accounts at Gazprombank, in here Pull quote
“Even inside of Ukraine it is very difficult to which will convert the sums to rubles for pay- to go in here Pull
explain,” Naftogaz CEO Yuriy Vitrenko told The ment to Gazprom. Meanwhile, some EU lead-
Washington Times in an interview. “It’s almost ers are pushing for an embargo on Russian gas. quote to go in
two months into the war. They’re killing inno- The bloc has already banned coal imports from
cent people and you read these horror stories. Russia and has indicated it is looking to impose a here Pull quote
But at the same time, we’re transmitting Russian similar restriction on oil trade.
gas.” The idea that the EU’s 27 member states will to go in here Pull
Ukraine stopped taking Russian gas for its all be able to agree to a ban on gas supplies is quote to go in
own use in 2015, following the Kremlin’s annex- hard to imagine. While some countries includ-
ation of Crimea in the previous year. But its own ing Lithuania, which has managed to wean itself here.
gas supply would still be at risk, as most of the fully off Russian gas thanks to an LNG terminal
gas it purchases from traders in Hungary, Poland it opened in 2014, strongly back an embargo.
and Slovakia to supplement its domestic supply But Germany, Hungary, Italy and other mar-
has in fact originated in Siberia and has already kets with significant dependence on Russian
passed through its own territory. This is not to gas have urged caution. Instead, the EU is likely
mention the transit revenues it receives from to pursue a more pragmatic strategy, of steadily
Moscow, which amounts to $1.2bn annually. curbing Russian supply as long-term contracts
Despite the financial hit Ukraine would take, expire and alternative sources of gas become
however, Kyiv is calling for European countries to available. ™
reduce their dependence on Russian energy faster.

P4 www. NEWSBASE .com Week 17 26•April•2022