Why this winter will bring a new gas crisis in Ukraine (and Europe)
Europe will face another catastrophic gas shortage this winter if the EU and its member states do not act fast to resolve a gas price dispute between Russia and Ukraine. Unbeknownst to many, Russia stopped supplying gas to Ukrainian consumers this summer because of a payment dispute. While this is the latest in a long series of disagreements between Moscow and Kyiv on the terms of their gas trade, the political context this time around is more than obvious. In response to the ousting of the Moscow-friendly regime led by Viktor Yanukovych in early spring of this year, Russia cancelled the two gas price discounts it had agreed upon with Ukraine in April 2010 and December 2013. This has left Ukraine over $3 billion in debt to Russia. If the current dispute is not settled soon so that gas can again flow from Russia, Ukraine could be forced to tap into gas supplies destined for Europe to prevent its own citizens from freezing this winter.
The role of Ukraine’s gas storage in securing supply
The Ukrainian gas storage system is the most important “element” in the security of gas supply for Ukraine and for the other European countries. An analysis of Ukraine’s monthly gas balance shows not only that Ukraine’s domestic production is only enough to cover gas consumption during non-peak periods i.e. during summer (May-Aug), but also that the country’s gas consumption is extremely seasonal – its consumption during winter months is roughly four to five times higher than during summer months. Therefore, to meet peak demand, Ukraine has to buy gas from Russia during the spring and summer and store it to meet demand during winter. And still this is usually not enough to satisfy peak winter demand, which is usually met with even more Russian gas imports. This year Ukraine has not been receiving gas from Russia since mid-June, thus missing half of the gas stocking period that would have been used this coming winter. Thus Ukraine is likely looking at extreme shortages of gas when temperatures fall and will be faced with a choice of either letting its own citizens freeze or tapping into the transit pipeline and consuming Russian gas destined for other European consumers. In the 2006 and 2009 gas crises, Ukraine faced the same choice and decided to tap into the transit pipelines to stay warm. This triggered Russia’s to completely cutting off gas supplies to Europe through Ukraine, a short-term solution with heavy costs for the rest of Europe.
For the complete article, please see European Council on Foreign Relations.