Wednesday, March 22, 2023
 
 

Putin’s Ukraine Deal Chills Gazprom

The Kremlin gives Yanukovych cheap gas with eye on Europe

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The Gazprom officials’ facial expression on Russian television says it all. Clearly they did not agree with Russian President Vladimir Putin’s political decision to slash the cost of Russian gas supplied to Ukraine by around a third.

On 17 December, Ukraine’s President Viktor Yanukovych reached a long-awaited albeit temporary gas deal with the Kremlin leader in Moscow.

Putin said Ukrainian state energy company Naftogaz can pay $268.5 per 1,000 cubic metres of natural gas, the standard purchase volume, instead of the current rate of $400. The $268.5 per 1,000 cubic metres price will be effective starting in January, Ukrainian Deputy Prime Minister Yuriy Boiko has said. Gas transit was reportedly not discussed during the negotiations.

Putin said the measure was only a temporary decision meant to ensure Ukraine and Russia’s gas consumers in Europe have a secured supply of natural gas.

Julian Lee, senior energy analyst at London’s Centre for Global Energy Studies (CGES), told New Europe on 19 December that the deal reached between Putin and Yanukovych does reduce the chances of a disruption to transit this winter.

“I think that it is almost inevitable that Gazprom influence in Ukraine will grow. Russia would like greater control over transit infrastructure and more influence over the Ukrainian market. Ukraine is trying to walk a tightrope between Russia and the EU without jumping into either camp,” Lee said.

But London’s Seven Investment Management Director Justin Urquhart Stewart told New Europe on 18 December that the deal between Putin and Yanukovych doesn’t instil much confidence. “It may give some confidence to Ukraine but if it means that they are providing guaranteed or at least assured supplies to Ukraine, if there is any sudden constriction, it will be Western Europe that will feel it,” he argued.

In Kiev, Sergei Sobolev, deputy director of the All-Ukrainian Union Fatherland opposition party, criticised the deal, saying he doubted the Russian government was being philanthropic by offering better terms for gas purchases. “We need to understand what the Ukrainian president gave Moscow in return for this,” RIA Novosti quoted Sobolev as saying. “I do not believe in altruism from Russia or any other country.”

The meeting between Putin and Yanukovych came as thousands of Ukrainians rallied in Kiev’s Independence Square, demanding closer ties with Europe instead of Russia. The protests began when the Ukrainian President halted an Association Agreement with the EU on 21 November and turned to Russia for support in shoring up Ukraine’s finances.

Russia has encouraged Ukraine to instead join a Customs Union it has formed with Belarus and Kazakhstan, but no deal was signed during the negotiations between Putin and Yanukovych on 17 December.

On 16 December, EU foreign ministers met in Brussels with Russian Foreign Minister Sergei Lavrov and EU chief diplomat Catherine Ashton. After the talks, Lavrov said he found support for what he called “three-way talks” on Ukraine’s possible free-trade deal with the EU.

Consumers in Europe get about 20% of their natural gas needs met by Russia though most of that runs through a Soviet-era gas transmission network in Ukraine. Russian gas monopoly Gazprom cut gas supplies to Ukraine in 2009 over debt issues, briefly disrupting gas supplies in some European countries.

Lee noted that greater Gazprom influence in Ukraine could be negative for the Russia’s flagship project — the South Stream natural gas pipeline bypassing Ukraine — which might end up, like Blue Stream, at only a fraction of its initially planned capacity.

Asked about the possibility of another gas crisis this winter, Urquhart Stewart said it depends on the weather. “But, yes, if we see sharp snap again, I wouldn’t be at all surprised if we see another constriction; the issues over Ukraine, of course, are to everybody’s mind as to what happens there; and as ever Western Europe should and never learns but should, of course, learn that having President Putin in control of the gas taps is never a very wise move,” Urquhart Stewart said.

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

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