Gazprom: An Instrument of Political Pressure
Self-inflicted wounds
For several years Gazprom has been doing all it could to destroy its marketing niche in Ukraine, and seems to be approaching a full victory in this battle.
Ukraine used to be the largest foreign consumer of Russian natural gas. In 2006 it imported 59 bcm of it. The second largest one, Germany, keeps buying about 34 bcm annually. For a business-minded supplier, such customer would have been a blessing— especially because it pays a very high price and, additionally, allows Russia to maintain a naval base for its Black Sea fleet in Crimea under a supplement to the gas contract. Such customer ought to be pampered and cherished.
Business considerations, however, are the last thing Gazprom employs in its relations with Ukraine. The gas company has become an instrument of political pressure. Accusations of ‘siphoning’, disruptions of supply and a propaganda campaign to portray Ukraine as an unreliable transit country are the backdrop for projects of bypass pipelines that are designed to leave the Ukrainian pipelines without Russian gas. Suggestions of a reduced gas price are made conditional on joining the Moscow-led Customs Union and dropping attempts to achieve Ukraine’s integration with the EU energy markets.
What has Gazprom achieved? Last year the Ukrainians decreased the volume of imported gas 24.5% to less than 33 bcm, and the Russian seller had to post a significant drop of revenues from this market. In 2013, Ukraine says it will cut down the purchases of gas from Russia to 24 bcm or even less.
Some of the missed volume will be compensated by energy saving measures, switching from gas to coal for power generation, and raising indigenous gas production. Moreover, the pressure from Gazprom pushes Ukraine to cooperate with the European Union closer and faster than anyone could expect a couple of years ago.
Negotiations are underway on using Ukraine’s large underground gas storage facilities by EU consumers to prevent seasonal shortages of supply. In a longer-tern perspective, if Moscow’s pressure persists, these facilities may become a base for storage of gas from non-Russian suppliers, replacing Gazprom in this strategic hub. And gas is already coming to Ukraine from alternative suppliers. Besides, the EU is reportedly prepared to assume a large portion of financing for an upgrade of the Ukrainian gas transportation and storage network.
Gazprom’s reaction to the rapprochement of Ukraine and the EU is nervous and devoid of logic. The Russian company claims that reversing the gas flow on the western borders of Ukraine is ‘non-transparent’ and ‘illegitimate’ but the argument cannot be proven. Under pressure, Ukraine is acting with resolution and determination. If you still believe that Gazprom is a commercial company, think again.
Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.