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EU Subsidy Keeps Russian Gas Coming to Ukraine

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Vouliagmeni, Greece – The morning sun was shining at a seaside resort south of Athens where a geopolitical conference was taking place on October 31, focusing on energy security. Despite the relatively warm weather, the news of a last minute gas deal between Russia and Ukraine reached in Brussels overnight eased fears that a gas crisis could disrupt gas supplies to the Mediterranean country this winter.

Ukraine, Russia and the European Union signed a deal late on October 30 in Brussels that will see Moscow resume much-needed gas supplies to its freezing ex-Soviet neighbour over the winter in return for payments funded in part by Kiev’s Western creditors. The deal will also ensure gas supplies to EU countries via Ukraine are secure.

“It’s only for the winter. But the winter is the most challenging period for Ukraine to go through the cold weather and for Europe as well. So it was crucial to reach this agreement now to resume Russian deliveries to Ukraine,” Alexey Grivach, Deputy Director of Moscow’s National Energy Security Fund (NESF), told New Europe on the sidelines of the conference “The Security of Europe: A new Geopolitical Dimension” by Greece’s Institute of Geopolitical Studies “National Generation” (IGMEA).

Ukraine is still a very important transit country for deliveries of Russian gas to the EU, especially to southeastern Europe, he said. “If Ukraine would have problems with warming their houses, heating, electricity, etcetera, they, of course, will take gas from the transit pipelines,” Grivach said. “They will not meet their obligations in transit and suffer from cold.”

Grivach said he hopes that following the agreement reached late on October 30 “this winter we will not face such actions from Ukraine”. Asked if a gas crisis was averted, he said, “We gained a base to avoid it. But still there is a question about the implementation of these agreements”.

The EU has agreed to serve as guarantor for the gas price Kiev would pay to Russia. Kiev has agreed to pay a total of $1.45 billion immediately from its own funds and another $1.65 billion by the end of the year.

Grivach said Ukraine doesn’t have enough money to pay $1.65 billion by the end of 2014. “There are some signs that during November and December, EU and international financial institutions will provide some additional financial aid to Ukraine,” he said, adding that still if it’s not in place or Ukraine does not meet EU and IMF obligations, “these funds may not come to Ukraine so we can meet another gas crisis in January”.

The Russian energy expert said he saw in the agreement a sign of improved relations between Moscow and Kiev. “Ukraine’s transit is kind of a bomb which can explode at any time and harm the Russian-European gas relationship. Because if gas is not flowing many people don’t want to hear about Ukraine and think that Russian gas is an unreliable partner for the EU. So there is the potential of using Ukraine as kind of transit weapon against Russian gas in Europe,” Grivach argued. “Even before the sanctions and before the Ukraine crisis, the main issue in the European energy policy is reducing Russian gas share in the European market. There are no alternatives but anyway this aim is still in place,” he quipped.

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Previously on Energy Insider:

Gazprom Sees Bigger Role in Austria

Putin Pushes South Stream In Belgrade, Milan

Gazprom Neft Well-Prepared For US-EU Sanctions

 

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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