Russia Flexes Muscles, Ukraine Remains at High Risk Despite Progress
Russia is progressively unveiling its gas strategy, further confirming it intends to seek a mix of consolidation of established ties, stronger cooperation with Asian countries and clear signals to Ukraine. In this sense, it is clear that Moscow is not giving up. It is determined to fight for its centrality in European gas markets, and Kiev could pay the price of this display of power.
GAZPROM - ENI
In the first days of the week, Gazprom gave some clear signs of strength.
Firstly, it met with an Eni delegation on Monday to address prospects for increasing bilateral cooperation.
‘Sochi hosted today a working meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Claudio Descalzi, Chief Operating Officer of Eni’ reads a note, explaining that the delegations spoke about the South Stream pipeline and other projects in the energy sector.
The Russian company said that the two parts discussed the issues of Russian natural gas supply to Italy.
‘It was pointed out that new supply routes would provide European consumers with the required gas volumes over the long run’ adds the statement.
The meeting comes after Italian government’s comments about the South Stream project. Last week, Minister for Economic Development Federica Guidi said that the South Stream is no longer a priority.
GAZPROM IN VIETNAM
A few hours later, on Tuesday, Gazprom Neft signed several agreements with Vietnamese companies in order to enhance cooperation between the two countries. Russian President Vladimir Putin and the General Secretary of the Communist Party of Vietnam, Nguyen Phu Trong took part to the signing ceremony.
In the meeting, Gazprom Neft and PetroVietnam discussed exclusive cooperation for the Dolginskoye field on the Pechora Sea shelf.
‘Before the end of May 2015 the two parties are expected to sign an operating agreement and outline terms for the creation of a special company for the project, in which Gazprom Neft will be a majority stakeholder. PetroVietnam will be given access to all relevant information on the Dolginskoye field, and Gazprom Neft will refrain from entering into any discussions with other third parties on possible collaboration on this project over a period of six months’ Gazprom Neft wrote on Tuesday.
RUSSIA - UKRAINE - HUNGARY
OECD said on Tuesday that most European countries have enough gas in their UGS facilities to cope with a major disruption, due to the 130 bcm of stored gas. However, there are several facts suggesting that Ukraine remains at risk.
Hungary’s Development Minister Miklós Seszták said on Monday that it will not restore reverse flows to Ukraine till its own storage units will be completely full.
According to GIE’s data, Hungary is one of the three countries that increased its stored gas on Monday. However, its storages are just 71.2% full at 4.5 billion cubic meters. Given the looming winter, thought, it is clear that reverse flow from Hungary remains highly unlikely.
Bilateral relations between Russia and Hungary are on the rise. Last week Putin said that Budapest is one of Moscow’s most important partners.
“We share the attitude of the Hungarian leadership aimed at growing constructive dialogue, jointly carrying out planned very large investment projects," Putin said last week.
FGSZ interrupted the gas transmission to Ukraine through the separate pipeline from Testvériség pipeline on the afternoon of the 25th September 2014 for an indefinite period.
UKRAINE - EUROPE
Naftogaz is trying to increase its ties with Europe, promoting transparency about gas transit flows through Ukraine. The company started to publish data on the information platform of ENTSOG.
‘It is Naftogaz’ hope and belief that daily disclosure of information on Ukrainian underground gas storage volumes and gas transportation volumes on leading European data platforms will give our partners confidence in both the reliability of the Ukrainian gas transportation system and the commitment to best quality business practices at Naftogaz and Ukrtransgaz’ reads a communiqué.
Kiev is also doing its best to source non-Russian supplies of gas. Last month, the country entered into an agreement with Statoil for gas deliveries in Slovakia.
It is now necessary to understand whether the support granted by Baltic countries to Ukraine will be confirmed by other governments in Europe. Kiev is taking the steps suggested by Brussels, but this does not immediately translate into higher energy security for the country.
On the other hand, tensions between Kiev and Brussels could soon emerge. It is likely that Ukraine will soon voice its requests and European countries could find themselves arguing on Kiev's proposals.
Last week, for example, Kiev asked Brussels to compensate its commitment to European values.
"A visa-free regime is what the EU can reward Ukrainian citizens for their commitment to the common European values. Freedom of movement is one of these values. I am convinced that by the time will be finally completed all items of the second phase of liberalization and visa will be canceled," Minister of the Cabinet of Ministers Ostap Semerak said on Friday.
In a moment of heated debates about immigration throughout Europe, Kiev's demands might soon turn out to be potatoes too hot to be held. In this case, Russia will have the upper hand, Europe will even increase its reliance on Moscow and Kiev will run into additional problems.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci