• Natural Gas News

    Friction in the Balkans [NGW Magazine]


Gazprom can no longer expect to get its own way even in countries outside the European Union, as new pipeline rules and cheaper LNG force change. [NGW Magazine Volume 4, Issue 17]

by: Dmitry Shlapentokh

Posted in:

NGW News Alert, Liquefied Natural Gas (LNG), Top Stories, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 17, Exploration & Production, Import/Export, Competition, Political, Regulation, Infrastructure, Pipelines, Moldova, Romania, Russia, Ukraine

Friction in the Balkans [NGW Magazine]

The end of the gas transport contract between Russia and Ukraine this December 31 creates potential problems for several countries, including the former Soviet republic of Moldova and the Russian-speaking region of Transdniestria, on the east bank of the River Dniester, which forms a part of it. The two regions are engaged in a frozen conflict that started with the ending of the Soviet Union.

Chisinau (formerly Kishinev) is concerned with possible problems more than is Tiraspol’, the capital of Transdniestria, and is searching for alternative routes for receiving gas, which last year amounted to 2.9bn m3 from Russia.

These include continuing to rely on Ukraine: Kiev has assured Chisinau that it will find a way to provide gas for Moldova even after the transit contract ends. Another alternative supplier is Romania. There are also plans to buy Russian gas from TurkStream. Finally, there is also the idea of buying US LNG.

Chisinau’s problems

Chisinau’s concerns are greater than Tiraspol’s, mostly because of Chisinau’s uneasy relationship with Moscow. This dates back to the early 1990s, when Moscow supported Transdniestria in its conflict with Chisinau. Chisinau asked for a considerable reduction in the price of Russian gas, but it seemed not to have much success. It feared deliveries would end almost completely and that Moscow would stop using the old trans-Ukrainian line completely. In addition, Moscow has dramatically increased the price of Russian gas since January 2019, although the latest news suggests a breakthrough is achievable – but possibly in exchange for further concessions from Moldova (see box).

It is not surprising that Chisinau has grown anxious and started to think about alternatives. Several projects emerged here. To start with, some people in Moldova still assumed that it could get gas from Ukraine.

Ukrainian option

Ukraine might be able to continue to import gas from Russia. The point here is that completion of Nord Stream 2 (NS2) is not a done deal and even NS 1 has run into difficulties following a court ruling on Gazprom’s use of the capacity of the Opal line in Germany, NS1’s southbound extension on land.

Denmark has still not provided permission to build NS2 and Kiev is hoping that the project will be derailed or at least delayed for a considerable amount of time. Moscow will in that case need to use Ukraine’s lines even after the 2019 deadline, and would be compelled to sign a new agreement with Ukraine, perhaps for ten years, allowing Ukraine to proceed with the old model. Indeed, since 2015, Kiev has reduced Russian gas purchases contractually but physically receiving mostly Russian gas at hubs in western and central Europe. It has given Chisinau assurances that it will provide Moldova with gas, come what may. It would be the same reverse-flow gas that Kiev buys from Europe.

And recently, another new opportunity has emerged, related to Poland’s plan to end its reliance on Russian gas. The plan fits very well with the US president’s plan to sell LNG to Europe but has additional benefits. The US has tried to find a new foothold in Europe, or at least shift the centre from Germany, the US’s faithful and most important ally throughout most of the Cold War era, to Poland: a big part of “new Europe,” the eastern European countries of the former Warsaw Pact. “New Europe,” mostly Poland, is unhappy with “old Europe,” chiefly Germany’s support for NS2, and Donald Trump’s “Liberty LNG” has helped Warsaw’s further alienation from Berlin. US LNG not only buttresses Poland’s independence from Russian gas, but it also helps Warsaw to project its influence in Ukraine. Indeed, a recent agreement has made it possible to transfer US gas to Ukraine via Poland. Some of this gas could be sent to Moldova.

Romanian option

Another option is to receive gas from Romania. The country has considerable gas deposits and plans to build a gas line from Romania to Moldova have been discussed for some time.

The first line opened in 2014, connecting Romania with Ungheni. In February 2019, Pavel Filip, Moldova’s prime minister, and Ana Birchall, a Romanian official, were present at the start of work on the second pipeline which would connect Ia┼či with Ungheni and Chisinau. Each line could transfer up to 1.5bn m3/yr “from the European Union.” Predictably, Moscow’s observers were not happy with the construction, and noted that it had problems. The most serious one is that the second link will not be finished before February/March 2020. In addition, the very notion of Romanian gas is a fiction, for Romania itself buys a considerable amount of gas from Russia.

Another Russian observer, Svetlana Gamova, regarded the construction plan a pipe dream. Indeed, she noted that Moldova has no money for the project and further noted that Chisinau has been planning to build gas pipelines for some time but fruitlessly so far. Besides expressing doubt that Moldova would bypass Russia, there was also an explicit threat. On one hand, a Russian observer noted that some political forces in Moldova are ready to live in peace with Russia and take Russia’s interests into account. Another, however, noted that the situation in the republic is unstable, and implied that anti-Russian forces could take power and engage in anti-Russian provocation. This might take the form of militarising the “security zone,” presumably the piece of land which separates Transdniestria from Moldova. And Moscow could view the attempt to receive non-Russian gas as an unfriendly action, and could well retaliate. Chisinau has to bear in mind that Russia is a major market for Moldovan agricultural products, and a million Moldovan workers are employed in Russia. In addition, Russia could invest millions of dollars in Moldova’s economy if it chose.

But Moldova has continued to co-operate with Romania, with which it has linguistic and other cultural ties, and the Romanian pipeline company Transgaz bought the Moldovan company Vestmoldtransgaz, which has been building a part of the second gas line connecting Ungheni with Chisinau.

TurkStream option

A third option is related to TurkStream, which also bypasses Ukraine, and this explains much of the Russian president’s desire to please his Turkish counterpart, including the delivery of the advanced S-400s weapon system. While the first line is practically complete – it is designed to satisfy Turkey’s internal needs – the second line is still mostly theoretical. The problem is that Brussels has created problems with its construction, as is the case with NS 2. The hurdle might be overcome, allowing Russian gas deliveries to southern Europe, and from here it could be sent in reverse flow to Moldova. Finally, there is discussion about US LNG. It is unclear how Moldova would get it directly, for it has no direct access to the sea.

LNG Option

Ukraine might succeed in buying US or any other variety of LNG and sending some of it on to Moldova. Ukraine has been engaged in attempts to receive all types of LNG for a long time, to no avail, and it is unclear why the present-day projects would succeed where earlier ones have failed. Price would be a part of the problem at the least. Still Moldova seems to be entertaining the idea of getting LNG directly from the US, although having no coastline it would have to take a longer route and pay even more in transit fees.

The end of the direct delivery of Russian gas to Moldova would create problems for Transdniestria. Up to now, Russia has provided Transdniestria with gas free of charge. But when deliveries of Russian gas stop flowing through Ukraine, Transdniestria will only be able to receive it from Moldova and this would dramatically increase Chisinau’s power over Tiraspol’. The concrete result of the end of the Russo-Ukrainian gas contract is not clear but it is evident that it would require Moldova, together of course with Ukraine, to adjust its gas policy to new realities, even if externally the arrangements are the same.

Contract breakthrough on price

Russia has agreed to grant Moldova a discount on natural gas supplies starting on October 1, Moldova’s president Igor Dodon said on Facebook on September 7, following a meeting in Moscow with Russian counterpart Vladimir Putin.

It currently pays $240/’000 m3 for these supplies but has been lobbying for a price reduction.

The Russian side suggested there were still some unresolved issues, however. “Various aspects of bilateral relations, as well as the gas issue, were discussed at the meeting,” Kremlin spokesman Dmitry Peskov was quoted as saying by RIA Novosti. “Those negotiations are close to finalisation and the proposed parameters are suitable in general.”

Dodon is keen to have a discount in place ahead of upcoming parliamentary elections in Moldova, scheduled to take place on October 20. The leader previously said he was seeking a 30% price cut.

To safeguard against possible disruptions in Russian supplies in 2020, the Moldovan government has requested an emergency loan from the EU to cover the purchase and storage of 400mn m3 of gas next January and February. This funding could potentially be used by Moldova to import gas from the EU via Ukraine.

Joe Murphy