Despite Gazprom’s earlier assurances, European customers of the Russian state-gas monopoly are suffering a reduction in supplies because of the row with Ukraine over new pricing and outstanding payments. Turkey is reportedly receiving no gas deliveries at all via the Ukraine transit pipeline but fortunately has an alternative supply through a Black Sea line. Gazprom’s Balkan and East European customers are also reportedly being hard hit and some, such as Bulgaria, hold only a few days’ reserve supply.
As a result of the dispute with Kiev, Moscow first stopped its contracted gas deliveries to Ukraine, but then, claiming that the Ukrainian gas utility Naftogaz was stealing supplies bound for Europe, it cut the flow further. It also claims that the Ukrainians have shut down three of the four transit pipelines carrying Russian gas across its territory. Naftogaz denies this.
Whatever the rights and wrongs of this dispute and precisely who has done what to impede the flow of gas to Russia’s other European customers, Moscow is clearly at fault in the way it has pursued its dispute with Kiev. If Gazprom is owed $600 million by Naftogaz, which the Ukranians say they have paid, then this matter can be settled in the courts. Likewise the price negotiations for 2009 deliveries — Russia has demanded $250 per thousand cubic meters (though it has also mentioned $450 based on last summer’s oil price) — can be settled by independent arbitration. That, at least, is the way normal commercial entities in dispute over contractual terms would seek to resolve their differences.
But Gazprom is far from being a normal commercial entity. It is quite clear that Moscow is using gas as a political weapon with which to threaten Ukraine’s pro-Western government, especially in light of that government’s proclaimed desire to join NATO. Though the EU is trying to mediate in this standoff, some European gas companies are already consulting lawyers to see if they have grounds to sue Gazprom for failing to honor its contractual obligations.
Since this is a replay of the 2006 dispute between Moscow and Kiev, minds will also turn naturally to replacing Russian gas supplies that have become both commercially and politically unreliable. There are opportunities for major gas producers such as Qatar, Algeria and the emerging offshore gas producer Brazil. Fresh pipelines and LNG handling facilities cannot be conjured up overnight but the case for making such major investments in new gas sources is surely becoming stronger in European capitals.
Russia is building a pipeline across the Baltic to Germany in order to bypass Ukraine but the Germans will be understandably cautious about this new resource. Indeed, as long as Russia is prepared to use its abundant energy supplies as a political weapon, trust in its commercial contracts will be much diminished.
The new disputes with Ukraine really should be settled in the courts and not by breaking the provisions of long-term supply agreements with other customers. Twenty, maybe even ten years hence, Russia might have no European gas customers at all.
