Gas Leverage A Possible Russian Tool

BMI View : Russia has a considerable lever on Ukraine through the gas it supplies to the country. Given that Russia has on two occasions used gas supply cuts as a political leverage on Ukraine, the current situation is certainly one in which Gazprom could once more use this lever to create pressure on a new Ukrainian government from re-orienting themselves towards a more pro-EU stance. While this could create some supply problems for several Central European and Balkan states, we note that the situation is slightly different than during the gas supply disruptions in 2006-2007: European gas storage inventories are high and the current mild weather is resulting is weak gas consumption. In addition, the Nord Stream pipeline pumping gas from Russia directly into Germany means that Europe has alternative delivery options.

Russian has considerable influence over Ukraine through the gas it supplies to the country. Ukraine is reliant on Russian gas imports for about 60% of its consumption needs and 100% of its imports. In 2012, Russia was the supplier of all imported gas into Ukraine, representing about 29.8bcm according to the BP 2013 Statistical Review of World Energy. In 2012, Ukraine produced about 18.6bcm of gas and consumed 49.6bcm.

Russia has previously used this leverage over Ukraine on two occasions, in 2006 and in 2009, when Russia used pricing disputes to pressure Ukraine from orienting itself increasingly towards Europe. As Ukraine in recent years increasingly positioned itself towards the European Union (EU) and away from Russia, Russia responded by vastly increasing gas prices to Ukraine to reflect those paid by central European customers, rather than those paid by Russia friendly states such as Belarus or Moldova. Gas prices rose from under US$100 per 1,000 cubic metres (/mcm) in the 1990s, to US$160/mcm in 2005, and to among the highest paid in Europe at US$400/mcm by the end of 2013.

Gas Imports Stabilise, But Highly Dependent On Russia
Ukraine Gas Consumption (bcm), Production (bcm) and Net Exports (y-o-y growth %)

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Related sectors of this article: Oil & Gas
Geography: Ukraine

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