EUROSCOPE. The gas wars in Europe

On Monday, Maros Sefcovic, the European Commission’s energy chief, hosted trilateral talks in Brussels with Russian energy minister Alexander Novak and Ukraine’s Volodymyr Demchyshyn aimed at resolving an impasse over Russian gas supplies to war-torn Ukraine.

Standoffs between Ukraine and Russia over gas delivery and payments are nothing new. Ukraine’s refusal to meet price rises in Russian gas supplies (which Russia said reflected the market price) has led to two incidents in the past decade — in 2006 and 2009 — where supplies to Ukraine were temporarily cut.

The 2015 impasse related to the conflict under way in eastern Ukraine — Ukrainian national gas supplier Naftogaz has stopped delivery to the eastern provinces of Donetsk and Lugansk since February 18 citing damage to infrastructure and lack of accessibility, a move that President Vladimir Putin condemned as smacking of “genocide”. Russia began channelling gas to those regions through other routes, deducting quantities from that which Ukrainian authorities had prepaid for.

With Ukraine’s prepayment for gas only lasting till early March, the threat of another cutoff loomed large, with potential consequences for the rest of Europe.

Around half of Russian gas entering the EU comes through Ukraine, and the previous standoffs had led to accusations from Russia that Ukraine had siphoned off gas intended for the EU.

In 2009, Russia responded by greatly reducing supplies to Europe, leading to supply disruption, particularly to countries in southern Europe such as Bulgaria, Romania, Greece, Hungary, and Austria in the cold winter months.

Fortunately for Europe another crisis has been averted for now — on Monday the three sides reached an agreement which involves Russia not counting the gas going to the eastern part of Ukraine towards the gas that Ukraine has paid for . In return, Ukraine has pledged to keep up payments. “I am reassured that the supply of gas to the EU markets remains secure,” said Sefcovic in a statement following the meeting.

Whether it’s been dealt with for the long term, of course, is another matter. The joint statement on Monday noted that the situation in eastern Ukraine remained “highly complex in legal, technical and political terms”.

Ever since the 2006 crisis European leaders have expressed their intention to both create more routes for Russian gas into Europe, as well as find sources beyond Russia. Around a third of Europe’s gas comes from Russia, with the rest coming from a range of sources including Norway, Britain, the Netherlands, and Algeria, and liquefied natural gas (LNG) imports.

Those ambitions have so far had some success: learning the lessons of the previous crises many European countries have learnt to build up large stockpiles over the winter period, while more and more interconnections have been built between states to ensure that supplies reach them in the case of scarcity. Countries have also diversified their sources — Slovakia, for example, once entirely dependent on Russia, now receives gas from Norway. Even Ukraine has diversified its sources getting some from Slovakia and Norway.

The Nord Stream Baltic pipeline bringing Russian gas to northern Germany has been up and running since 2012 and others are in the works, including the trans-Adriatic and trans-Anatolian that would bring gas from other sources such as Azerbaijan and beyond.

However, diversification has not progressed at the rate many had hoped for. The ambitious Nabucco pipeline was shelved in 2013 as a result of funding issues while plans for a separate South Stream pipeline were also abandoned at the end of 2014 after it came up against EU competition rules.

According to the EU, six member states remain entirely dependent on a single source for their gas supplies.

Recognising the pressing need to continue to diversify (the EU imports 53 per cent of its energy needs), the EU launched its plans for an energy union last week to create a “secure sustainable competitive” energy market for Europe. It stressed the need to reduce dependence on individual sources, and create more interconnections between European countries, promoting the free flow of energy across borders. What this amounts to remains to be seen.

“The EU tend to set aspirational goals rather than realist goals,” says Andrew Neff, senior analyst at IHS Global Insight, pointing to the unwillingness of many states to cede national sovereignty. “Countries want the union in times of crisis but the rest of the time they are geared up to defending national security.”

LNG has long been put forward as an alternative — for example, last year, Britain’s former foreign secretary suggested that as part of a rejigging of energy policy, talks would take place over the potential for increasing US imports.

However, this remains a long way off, and while supplies do come from the Middle East Asia remains a far more attractive destination for their supplies with its higher prices, demand, and growth, says Neff.

Meanwhile, hopes for a European shale gas boom have disappointed. Last year, Bloomberg reported that in Poland — where much of Europe’s reserves are thought to lie — even the highest test flows were just a third of what were needed for commercial production.

All in all, Europe’s ambitions of getting away from Russian gas seem rather bleak. Rather its efforts to diversify are more about keeping its dependence on Russian gas from going above 30 per cent to 40 per cent, rather than being able to take it down towards a fifth, says Neff.

For the foreseeable future, Europe’s complex, highly interdependent relationship with Russia is likely to continue.

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