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    As Ukraine Moves Towards Militarisation, Possible Gas Crisis Reemerges

Summary

The escalation in Mariupol could lead to a worsening of relations between Moscow and Brussels, said EU High Representative Federica Mogherini,

by: Sergio

Posted in:

Natural Gas News, News By Country, Ukraine

As Ukraine Moves Towards Militarisation, Possible Gas Crisis Reemerges

Ukraine’s President Petro Poroshenko stated that Kiev will file a suit to the Hague Tribunal to “investigate into these crimes against humanity,” echoing recent declarations of European authorities. In this sense, as said by EU High Representative Federica Mogherini, the escalation in Mariupol could lead to a worsening of relations between Moscow and Brussels. More gravely, Ukraine and Russia keep drifting away in a very delicate moment. 

Keeping in mind that the two former allies were supposed to hold negotiations for new gas deals, it seems clear that Kiev will be increasingly dependent on foreign countries. Meanwhile, Naftogaz keeps sending warnings, indicating that the country could soon run out of gas. 

According to GIE data, Ukraine withdrew 0.58% of its remaining stored gas on Monday. At the moment, it has 9,909.11 mcm of gas left in its UGS facilities, which are 30.21% full.

In percentage terms, the Ukrainian UGS facilities are emptier than similar structures in any other country in Europe. Hungary follows with a 47.60%. On the opposite end of the spectrum, Spain is the country displaying the fullest facilities (81.34%). All in all, the situation is not yet tragical. Indeed, Ukraine remains the third country for stored gas after Germany and Italy.

At this point, the winter seems the least thorny period - Kiev will make it through, but the following months will be particularly dangerous for the whole regions and the gas markets too. Ukrainian authorities recently said the country could reduce its reliance on Russia to 15%. But also getting just 15% of its gas needs could soon be a problem.

EUROPEAN AUTHORITIES: POSSIBLE DETERIORATION 

“This further escalation of the open armed conflict has tragic consequences for a population greatly suffering already for far too long. It would inevitably lead to a further grave deterioration of relations between the EU and Russia” said Mogherini, calling on Moscow to “stop any form of military, political of financial support.” 

A deterioration of economic ties seems already underway. 

Russian Deputy Prime Minister Dmitry Rogozin said on Monday that the country will being “squeeze out foreign-produced aircraft" from Russia market. He announced the country will increase its mid-range passenger jets over the next two decades, hinting at a contemporary decreased reliance on imports. 

In this sense, also Germany's recent calls for a normalisation passed unheard. Russian declarations seem to go in the opposite direction of Angela Merkel's offer to negotiate common trade areas with the EU. The proposal was conditional to Moscow refraining from any activity contrary to the Minsk Agreement.

UKRAINE: GAS OVER-USAGE

Kiev has to deal with security problems and energy security problems too. The country keeps more gas than planned by the national oil and gas company of Ukraine. 

According to Naftogaz, the amount of gas used by industrial consumers, government financed institutions, district heating companies, and households was 17% above the targets set out by a recent Government Decree for the first 20 days of January. 

This could pave the way to further price increases over the next weeks. 

Last September, Naftogaz announced energy price increases up to 300%.

UKRAINE: MILITARISATION

A military escalation is around the corner, and Kiev's decision to launch an emergency regime at the state level comes at no surprise. 

‘The Ukrainian Government has taken a decision to introduce an emergency regime on the territory of Donetsk and Luhansk regions, a high alert mode throughout the entire Ukraine’s territory and to set up a State Emergency Commission’ reads a separate note. 

Logically, these new measures will have repercussions on the ties with Russia. The tones of the discussions are an additional element suggesting that the negotiations for a gas deal replacing the so-called "winter package" might be even more difficult than the ones brokered by former Commissioner Günther Oettinger.  

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci