Fossil Fuels

Published on March 14th, 2014 | by Guest Contributor


The Impact Of The Ukrainian Crisis On The Gas Market

March 14th, 2014 by  

Originally published on Energy Post.
By Karel Beckman.

A new report by the Oxford Institute for Energy Studies discusses what the current Ukrainian crisis could mean for EU and global gas markets.

Gas stove burners.
Image via Roman Sigaev/Shutterstock.

According to the report, “The change of government in Kyiv, the Russian military action in Crimea, the diplomatic reaction by the western powers, and the perceived danger of war, clearly have implications for all economic relations between Russia, Ukraine and Europe, especially in the energy sphere. Russia supplies about 30% of Europe’s natural gas, and more than half of these volumes are still transported via Ukraine. In Ukraine, gas supply issues are combined with the economic upheavals aggravated by political crisis.”

As of March 10th 2014, the most likely source of supply disruptions is the serious indebtedness of Naftogaz Ukrainy, which, despite clearing some of its $3.3 billion debt to Gazprom in late February, as of 7 March was in arrears to Gazprom by a sum of just under $2 billion.  In previous Russo-Ukrainian gas disputes, such a build-up of debt has led to Gazprom cutting off deliveries to Ukrainian customers and the subsequent diversion of transit gas bound for Europe to consumption in Ukraine. This led in January 2009 to all westward deliveries of Russian gas, both to EU and Ukrainian destinations, being suspended for two weeks.

The report continues: “If gas deliveries through Ukraine are halted the impact would be less serious than in 2009, because (i) the Nord Stream pipeline, which transports Russian gas to Germany without crossing Ukraine or Belarus, has been completed, and other interconnections have improved the situation in eastern Europe; and (ii) the economic situation, and the arrival of milder weather means that demand is relatively low.”

“From Europe’s standpoint, commercial logic would suggest that support would be given to diversifying gas transit away from Ukraine, including regulatory support for the South Stream pipeline, which, if completed with four strings, should enable the transit of Russian gas through Ukraine to be suspended completely by 2020. However, it is possible that a political move to minimise cooperation with Russia on energy issues in line with European governments’ views of the Russian action in Crimea – may prevail. In this case, the EU-Russian disputes over gas imports and regulation will worsen, with potentially negative consequences for South Stream. Moreover, European efforts to diversify away from Russian gas, the success of which has been limited in the past because of the economic costs, will be revived.”

The full report, written by Simon Pirani, James Henderson, Anouk Honoré, Howard Rogers & Katja Yafimava, can be found here.

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  • Fact

    more and more it seems that the patriotic thing to do is to consume less (energy). If we are to begin to export NG in support of our European allies, prices will increase here (not saying much in comparison from the frack floor that we are at now). However, because a majority of this fuel is used for heating purposes it’d be nice to see a cleantechnica post re: pellet stoves, their effeciency, and cost per BTU’s in comparison between them. just a thought.

  • Ronald Brakels

    Let’s say that rust monsters, creatures previously thought to be entirely fictional, completely eat the Ukraine crossing gas pipeline before being rounded up and kept under lock and key as insurance against a robot uprising. The dissapearance of the pipeline would be annoying for Europe and particularly Germany in the short term, but they would work around the supply disruption. Both Germany and Japan’s nuclear shutdowns have demonstrated just how flexible modern economies can be when dealing with energy shocks. The real loser would be Russia as the disruption would encourage a more rapid shift to renewables in Europe and also unfortunately encourage more fracking and coal seam drilling in places such as Poland. The decreasing cost of renewable energy, electrification rather than gasification of transport, and moves by other countries to increase their natural gas exports, all suggest that Russia may not be able to get a better price in the future for gas they don’t export now.

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