Gazprom May be Seriously Hurt by the Crimean Conflict
For many years, Gazprom executives were talking about the elimination of gas transit through Ukraine. Their dreams may turn into reality any day now. This is too early, as there are no pipelines to replace the Ukrainian ones yet.
Crimean conflict has increased the risk of interruption of transit flows of Russian gas through Ukraine to Europe. Ukrainian radicals may be tempted to punish Vladimir Putin by breaking into regional offices of Ukrtransgaz and turning off the taps.
Last year, about 55 percent of European gas exports of Russia were shipped through Ukraine. In case of emergency, Gazprom and the EU can quickly reduce the Ukrainian share to one-third by fully loading the Nord Stream pipeline. However, without Ukrainian transit, Russian gas export monopolist would be able to fulfill just about two-thirds of its contractual obligations.
The timing of conflict is bad for Gazprom. It is early spring now and gas demand for space heating is going down every day. Ukraine would be able to survive without any imports of Russian gas until about mid-October. Having Nord Stream fully loaded, European customers are unlikely to notice the loss of one-third of daily flow of Russian gas until the next winter. Note, that the winter of 2014-2015 may create serious problems for everybody if there is not enough gas injected into storage facilities in Western Ukraine.
Unlike Ukraine and European importers, the state-controlled Russian giant cannot afford losing a third of its monthly export revenue even for one month. Especially, if it is combined with complications in getting loans from foreign banks (suggested by State Secretary John Kerry). There are no money in the federal budget for additional subsidies to Gazprom and Russian government has already promised to freeze the domestic price of gas (not that the end use industrial price of gas in Russia is the same as in the US).
Vladimir Putin has a choice between withdrawing from Crimea and seriously hurting or even bankrupting Gazprom. I think, for Russia's president Gazprom is a way more important. So, facing the US and the European Union, Putin is likely to blink first.
If you are a Premium Subscriber you can access NGW magazine here.
Natural Gas World welcomes all viewpoints. Should you wish to provide an alternative perspective on the above article, please contact email@example.com
Kindly note that for external submissions we only lightly edit content for grammar and do not edit externally contributed content.