Gas Is Cut While Europe Freezes

ISTANBUL, Turkey -- In the middle of a freezing winter that has already claimed hundreds of lives across Europe Russia cut/reduced the flow of gas to Europe last week.

Italy, Austria and France, among others, reported cuts of some 30 percent.

After originally blaming neighbor Ukraine, Russia’s energy giant Gazprom admitted that it had cut the gas supply as a result of the unexpected cold spell, which has seen temperatures in some parts of Russia fall to below minus 40 degrees Celsius (-40 F).

As a result, Moscow was forced to give priority to keeping its own citizens warm.

Given that current Prime Minister Vladimir Putin is only a few weeks away from a presidential election where he may face a real fight for survival, with waves of protest rocking his boat, the last thing he needs is for Russians to have something else to complain about.

Indeed, the cold weather in Europe and concerns about the reliability of Russian gas supplies have resulted in a price increase in different places around Europe including in the United Kingdom, where prices are at a level not seen since 2006.

Prices in Germany and France have also increased by some 20-25 percent -- very unwelcome in a period of economic crisis.

The cold snap has also had a severe effect on Ukraine, which has seen more than 130 people die, with the country also being affected by the Russian cut.

Ukraine, which, as a transit country is responsible for more than 70 percent of Russian gas flowing to the EU, used the incident as a way to promote its potential.

Kiev told Russia that it was ready to help Russia deliver the necessary volumes of gas to Europe while at the same time calling for greater European cooperation to modernize Ukraine’s gas transportation infrastructure, which will go some way to improving energy security for the EU.

However, Russia’s relations with Ukraine are presently rather sour, with the two locked in a dispute over a 2009 gas contract.

The contract, which was negotiated between Vladimir Putin and former Ukrainian Prime Minister Yulia Tymoshenko (for which she is now serving time in prison), is very favorable for Russia and far from wonderful terms for Ukraine.

Therefore, there is very little chance of Russia doing Ukraine any favors unless the country makes concessions to Moscow on issues of importance to them.

Thankfully, the cuts did not create a new energy crisis for the EU.

Moreover, the gas contracts that the EU has with Russia allow for a certain amount of flexibility in the event Russia needs extra gas, which was the case this time.

However, it was a timely reminder of the need to quicken the pace of the work on the diversification of supply routes and sources projects.

Europe’s gas storage has improved in recent years with supplies being increasingly diversified by the availability of liquefied natural gas (LNG).

The European Commission now has a Gas Coordination Committee and member states committed to assisting each other should a crisis unfold.

Moreover, following the gas crisis of 2009 between Russia and Ukraine, which resulted in a number of member states being without gas for several days, the EU now asks members to have 30 days of gas in reserve.

Moscow has advised the EU that such a scenario may be avoided in the future by the introduction of more pipelines, or by expanding the ones that already exist.

This gave Moscow the opportunity to promote its recently launched Nord Stream and planned South Stream project, which aim to carry gas across the Black Sea to Bulgaria and then on to southeast Europe and Italy.

However, while Russia will remain a key energy partner for the EU in the foreseeable future, new projects coming from the Caspian Sea region are seen as being more desirable than an increasing dependency on Russia, given Moscow’s history of using gas as a foreign policy tool.

However, the EU plans vis-à-vis Caspian Sea gas have not been straightforward.

There has been a lack of political will and problems with financing as well as gas sources.

The EU is also still awaiting the decision on which pipeline will eventually deliver gas from Azerbaijan’s Shah Deniz II gas field to the EU market.

Unfortunately, the future of the EU-backed Nabucco Pipeline seems very uncertain with questions over financing and gas supply still outstanding.

To be commercially viable Nabucco needs a second major source of gas.

Furthermore, following the agreement between Turkey and Azerbaijan for the creation of the Trans-Anatolian Pipeline, it now seems more likely that a cheaper, Nabucco-rivaling project such as the Interconnector Turkey-Greece-Italy (ITGI) or the Trans Adriatic Pipeline (TAP) may get the backing of the Shah Deniz consortium, which is due to decide by the end of March.

Although neither of these pipelines are “strategic,” they will use existing infrastructure (Nabucco will use a new pipeline) and thereby will enable Caspian Sea gas to start flowing to the EU market much sooner than Nabucco.

Source: Sunday's Zaman