Russia Postpones the New Round of Gas Deal with Ukraine until April

Roman Rukomeda

Russia has tried to immediately start new gas negotiations with Ukraine and EU in order to create additional pressure on the Ukrainian government for weakening its position within the scope of its general strategy of provoking instability in Ukraine. The preterm round of the new gas war with Ukraine could have been the best instrument for that. But EU could not ignore such move of Gazprom as Brussels was a party to the winter package agreement between Ukraine and Russia. So EU managed to postpone the new and challenging gas negotiations of Kyiv, Moscow and Brussels in early April. As Russia does not want to fully lose EU support – it decided to wait until the end of the first quarter of 2015. In this regard, EU Energy Chief Maros Sefcovic said, "I am satisfied that we managed to safeguard the full application of the winter package for the supply needs in Ukraine," after mediating emergency talks between Russian Energy Minister Alexander Novak and his Ukrainian counterpart Volodymyr Demchyshyn.

The other important outcome of current agreements is that Ukraine will continue to buy Russian gas according to its prepayments until the end of March; the winter package will be fully implemented; Naftogaz will pre-pay and order sufficient quantities of gas from Gazprom to cover all domestic consumption of Ukraine in March; Naftogaz will continue to guarantee an undisrupted transit of gas to the EU; and Gazprom will deliver up to 114 million cubic meters of pre-paid and ordered gas per day to mutually agreed delivery points. The issue of supplies to certain areas of Donetsk and Luhansk regions in Eastern Ukraine is highly complex in legal, technical and political terms; the issue will be discussed again in April.

Under the pressure of losing the European gas market, Russia will try to save at least some part of Ukrainian market at the level of 7 – 10 billion cubic meters (bcm) in 2015. For this purpose, Gazprom and Russian president will apply the maximum pressure on those Eastern European countries that provide reverse gas flow for Ukraine – Hungary, Poland and especially Slovakia. The pressure will be combined with proposals of serious discounts on Russian gas (about 10 – 20%). 

At the same time Russia will try to implement the Transnistrian gas scenario for Ukraine that will include the uncontrolled delivery of Russian gas to Donetsk and Lugansk regions of Ukraine under the authority of terrorists while assigning the bills for that gas to the Ukrainian government. This question will be one of the cards in the energy negotiations among Ukraine, EU and Russia in April. Now it seems that the “summer package” is more likely to succeed in the upcoming negotiations as all the parties are interested in the export of defined volumes of Russian gas to Ukraine in the middle of 2015. The main factor that can ruin this prospect is the new stage of military combat in case of a new Russian offensive against Ukraine. 

Russia is inevitably losing its position in Eastern European gas markets. The most devastating blows in this direction were the new LNG-terminal in Klaipeda, Lithuania (initial capacity – 4 bcm per year) and the new LNG-terminal in Świnoujście, Poland (initial capacity – 5 bcm per year with an opportunity to increase up to 7.5 bcm). It clears the way not only for the export of American LNG to Eastern Europe but also for creating the North – South gas corridor within the EU with the help of interconnectors. 

The other blow for Gazprom is the loss of the Ukrainian gas market which was around 30 bcm per year only 3 years ago, and now the market has reduced by half with a possibility of total loss in the near future. Such a scenario means not only a decline in Gazprom’s revenues but also serious underfinancing of Russian state budget as well as the loss of political influence over Eastern Europe and Ukraine. Gazprom will try to slow down this negative trend for its interests in Ukraine and Eastern Europe but it will fully depend on the general line of Russian policy on Ukraine and the ability of Moscow to strictly fulfill the conditions of the Minsk agreement. 

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