Page 15 - RusRPTFeb22

“The “gas weapon,” to the extent it exists, can be viewed like nuclear weapons: “Too powerful to ever be used” or, for that matter, to even be mentioned directly in negotiations over this or that disagreement between countries,” argues Smith. “Rather, such weapons are best left in the background, with everyone fully understanding that they exist and that, by existing, they limit the scope of escalation of disagreements in international relations.”
While shutting off the gas spigot would have enormous and immediate effect in Europe, the long-term consequence for Russia’s gas business make it an extremely unappealing option for Moscow. The problem is that gas deals usually run for decades and so the reputational risks are key to the business. And Russia has over a hundred years worth of gas reserves under the ground in the Yamal complex in the Arctic.
Part of what has been driving this year’s gas crisis has been Russian President Vladimir Putin insistence that Russia won’t ramp up gas deliveries beyond its contractual obligations unless Europe sign off on new long-term contracts. Russia has been investing heavily into developing both the fields and also the infrastructure – the controversial Nord Stream 2 gas pipeline specifically connects the Yamal fields directly to Germany, Gazprom’s biggest customer – but needs long-term contracts to make this business profitable and viable. Taking the long-term view, the Kremlin is uninterested in making a few extra bucks from the spot market in Holland during the recent soaring price for gas, if it can lock in solid profits for the next 30 years.
Despite its history with Ukraine, Gazprom and Putin have repeatedly insisted that Russia is a “reliable energy supplier.” Indeed, during this winter Gazprom has scrupulously stuck to the terms of all its supply contracts. And when it transited less than the 65bcm of gas it signed off on in a new transit deal with Ukraine in December 2019 the Russian state-owned company simply paid the transit fees for 2020
“Keep in mind that since the start of Soviet-German gas contracts in the early 1970s, the mind-set of the Russian side has been “meet the contract at all costs.” At one point, experiencing some technical problems, the Soviets reportedly even cut Leningrad off of gas for a few days in order to make sure the export contract was fully filled,” says Smith. “Times change, of course, and a couple of hiccups have been experienced over the years, but I think this prioritization is pretty deeply imbedded in Gazprom’s corporate culture (although, obviously, decisions of such magnitude would be taken in the Kremlin, not Gazprom headquarters).”
Smith speculates that if Gazprom were to do the 2009 clash with Ukraine over again it would now choose to keep the gas flowing as the decision to cut Ukraine off has already done significant damage to its business and continues to cause major problems in getting those crucial long-term contracts signed now, 13 years later.
“I think Russia is extremely unlikely to purposefully cut Europe off from gas,” says Smith. “I think the Kremlin is fully aware that such an action would have long-term consequences for Russia, the cost of which are impossible to calculate but would almost certainly exceed the value of any short-term gains.”
15 RUSSIA Country Report February 2022 www.intellinews.com