Europeans hold aces, even if gas crisis resurfaces

9th December 2009, Comments 0 comments

While no one rules out a repeat of Russia's decision last January to turn off the gas taps that keep Europe warm and working, the rules of the game have changed somewhat even if Ukraine is in a chaotic state.

Brussels -- The European Union entered Friday's summit with Ukraine in a more relaxed mode thanks to solid gas stocks going into winter and a drastic fall in post-recessionary energy consumption.

While no one rules out a repeat of Russia's decision last January to turn off the gas taps that keep Europe warm and working, the rules of the game have changed somewhat even if Ukraine is in a chaotic state.

On the seventh of each month, Kiev has to sign a painfully large transfer of funds to Moscow to cover its vast internal gas consumption.

But if 2009 has seen its fair share of stressful waiting to see if the deposit meets its deadline, with the threat of Russian retribution forever hanging over its former Soviet satellite, the stakes have altered.

A quarter of the gas consumed by Europeans originates in Russia, and 80 percent of that supply is furnished via pipelines that cross Ukrainian territory.

When the flow stopped for two weeks in January, Europe was officially held hostage -- but payments are up to date, and the next one, due on Monday, ought to land without too much difficulty, even if January and February of 2010 feels a long way away.

Ukraine is one of the countries worst hit by the economic crisis and was granted a 16.4-billion-dollar (11 billion euro) IMF loan last year, but the money has been frozen after Ukraine's parliament voted to increase social spending.

Neither are there too many green economic shoots visible to ease the problems, with the country facing a 15 percent contraction of its economy this year.

The Europeans are "weary" of unkept promises, such as those to reform the management of Ukraine's national gas company, Naftogaz, says Susanne Nies, an energy expert with the French Institute of International Relations.

"The long-term outlook of the EU jars with Ukraine's very short-term view, marked by the absence of a state of law, by the lack of governmental responsibility inherited from 70 years of Soviet rule and by a clan-like way of running its businesses," she said.

In such conditions, "no investor, not even Russia, is ready to put one euro into the system," she added.

Ukraine's presidential election, due on 17 January, adds to the uncertainty.

"We can hope for a gentleman's agreement on the part of the Russians so as not to disrupt the vote, but a gas crisis is absolutely not out of the question," said a European diplomat.

"I wouldn't rule out an interruption to supply after the election," added another diplomat.

Yet Russia "gains no advantage" currently from turning off the taps, because rival gas companies within the EU will seize on such a turn of events to renegotiate their contracts, a European official said.

Russian gas contracts are agreed long term, but the economic crisis has seen a spectacular drop in industrial consumption.

Earlier this year, Russia agreed to reduce the volume of gas Kiev must acquire this year without imposing potentially crippling multi-billion-dollar fines, going from 52 billion cubic metres of Russian gas next year to only 33.7 bcm.

The European gas companies would love such a negotiating opportunity, especially with gas prices having fallen in line with demand and Russian gas suddenly looking expensive.

"The market reality has changed in the last year," Nies underlined. "Consumers can for instance buy liquefied natural gas elsewhere for less money."

At Friday's talks, Ukraine was expected to agree to a "rapid alert mechanism" allowing for the urgent dispatch of EU observers to check Ukrainian delivery channels ... and establish just who, between Kiev and Moscow, is pulling their chain.

Catherine Marciano/AFP/Expatica

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