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For many years, Gazprom
executives were talking about the elimination of gas transit through
Ukraine. Their dreams may turn into reality any day now. This is too
early, as there are no pipelines to replace the Ukrainian ones yet.
Crimean conflict has
increased the risk of interruption of transit flows of Russian gas
through Ukraine to Europe. Ukrainian radicals may be tempted to
punish Vladimir Putin by breaking into regional offices of
Ukrtransgaz and turning off the taps.
Last year, about 55
percent of European gas exports of Russia were shipped through
Ukraine. In case of emergency, Gazprom and the EU can quickly reduce
the Ukrainian share to one-third by fully loading the Nord Stream
pipeline. However, without Ukrainian transit, Russian gas export
monopolist would be able to fulfill just about two-thirds of its
contractual obligations.
The timing of conflict
is bad for Gazprom. It is early spring now and gas demand for space
heating is going down every day. Ukraine would be able to survive
without any imports of Russian gas until about mid-October. Having
Nord Stream fully loaded, European customers are unlikely to notice
the loss of one-third of daily flow of Russian gas until the next
winter. Note, that the winter of 2014-2015 may create serious
problems for everybody if there is not enough gas injected into
storage facilities in Western Ukraine.
Unlike Ukraine and
European importers, the state-controlled Russian giant cannot afford
losing a third of its monthly export revenue even for one month.
Especially, if it is combined with
complications in getting loans from foreign banks (suggested by
State Secretary John Kerry). There are no money in the federal
budget for additional subsidies to Gazprom and Russian government
has already promised to freeze the domestic price of gas (note that
the end use industrial price of gas in Russia is the same as in the
US).
Vladimir Putin has a
choice between withdrawing from Crimea and seriously hurting or even
bankrupting Gazprom. I think, for Russia's president Gazprom is a
way more important. So, facing the US and the European Union, Putin
is likely to blink first.
Mikhail Korchemkin
East European Gas
Analysis
Malvern, PA, USA
March 2, 2014
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