– EU leaders draw up plans to send gas to Ukraine if Russia cuts off supply (Guardian, March 7, 2014):
Europe braced for possible battle with Moscow after Gazprom threatens to cut off gas supply if Ukraine does not pay bill
EU leaders are rapidly drawing up plans to send some of their stocks of Russian gas back to Ukraine and other eastern European countries that need it, if Vladimir Putin reacts to western sanctions over the Crimea crisis by starving the continent of energy.
Russia’s largest gas producer, Gazprom, said on Friday that Kiev had missed a deadline to pay $440m for gas received in February and threatened to cut off the country’s supply if it did not make the payment.
Gazprom provides Ukraine with around half its gas, and other countries in eastern and southern Europe, including Poland and Greece, reportedly have low stocks of gas.
Although Gazprom said the threat to Kiev would not affect the supply to the rest of Europe, western leaders are steeling themselves for a possible battle with Moscow over energy supplies. At least half of the Russian gas that is piped to Europe passes through Ukraine.
Gazprom last cut off supplies to Ukraine in early 2009, leading to a slump in the supply of Russian gas to Europe. “Either Ukraine makes good on its debt and pays for current supplies, or there is risk of returning to the situation of early 2009,” Gazprom CEO Alexei Miller said on Friday, adding that Ukraine now owed $1.89bn in unpaid bills.
The move to consider reversing Russian gas flows comes amid growing pressure in Washington to exploit the huge boom in US gas – extracted through fracking technologies – to begin global exports, providing a counter-weight to Moscow’s influence.
Although it is the largest producer of natural gas, the US does not currently export its supplies, and the construction of a handful of export terminals will not be completed until at least 2015. But Barack Obama’s administration considering moves to accelerate a drive to export its energy, weakening Putin’s leverage in the future.
In Brussels on Thursday, European leaders engaged in detailed discussions about the feasibility of switching the flow of gas in eastern Europe’s pipelines. Storage reserves in Europe, particularly Germany and Hungary, which have ample supplies, could be used to pump gas back towards Ukraine.
José Manuel Barroso, the president of European Commission, said energy security was an early priority for Ukraine, adding: “We are looking in the short term at the gas transmission network to ensure that reverse flows with the European Union are fully operational.”
A project to modernise Ukraine’s gas transmission infrastructure forms part of the EU’s $15bn promised aid package to Kiev, with an initial loan possible in the near future. A European Commission memorandum specifically states it will seek to enable “reverse flows” of gas to Ukraine, ensuring they can be “operationalised as soon as possible”.
Such a move would likely occur first through Slovakia, and EU officials are pressing Slovakia and Ukraine to quickly sign an agreement that would enable gas to be piped in the opposite direction if the need emerges. Additional “reverse-flow corridors” could be introduced through Bulgaria and Romania, or Croatia and Hungary.
A senior German official briefed on Thursday’s meeting told the Guardian that Berlin was ready to help. “Our gas storage tanks are well filled after a mild winter and we stand ready to assist Ukraine in securing its energy supply including working on reserve flows.”
However, European officials and energy experts concede there are doubts over whether it would be technically possible to transfer sufficient gas through the continent, west to east, if Russia decided to restrict its supplies for a significant period of time. While short-term assistance through the summer months could help, western Europe would not have the capacity to supply neighbours in the east for an extended period of time.
Speaking on the condition of anonymity, one senior executive said reversing gas flows would be an extremely complex move. “This is not easy to do. Certainly the Gazprom export pipeline is built to move gas only in one direction, and it would involve a lot of time and money to reconfigure for imports,” the executive said. “You would also have to get the agreement of dozens of commercial and other organisations. It is not going to happen.”
Europe imported 155bn cubic metres (bcm) of gas from Russia in 2013, about 30% of its overall gas demand, according to Wood Mackenzie, an Edinburgh-based energy consultancy. Ukraine is the key transit route for Russian gas to Europe, with around 50% piped through the country in 2013.
Gazprom insists exports remain stable, and is desperate to avoid a repeat of the Russia-Ukraine “gas wars” of 2006, 2008 and 2009.
In Washington, there is a growing appetite to retaliate against Russia with a long-term, strategic acceleration in energy exports. Exporting US gas obtained through fracking would be controversial among environmentalists, Democrats, and US industries reliant on cheap energy, the price of which would be expected to rise if supplies were being piped abroad.
Republicans, backed by gas producers such as ExxonMobil, have for years been pushing to dramatically increase gas production to enable export trade, and are using the crisis in Crimea to argue for swift action by the Obama administration.
US gas production is projected to rise 44% by 2040, according to the US Energy Information Administration, and producers have been pressing the Obama administration to expand exports of natural gas.
The Republican leader of the House, John Boehner, used an an op-ed in the Wall Street Journal on Friday to call on Obama to “dramatically expand production of American-made energy” and make US supplies of natural gas available to global markets.
The Department of Energy as approved six applications to export domestically approved applications for terminals to export liquefied gas; five are in Texas and Louisiana, and one in Maryland. A further 24 applications are pending and Boehner and other top Republicans are calling on the administration to expedite their approval. “The ability to turn the tables and put the Russian leader in check lies right beneath our feet, in the form of vast supplies of natural energy,” Boehner said.
The Obama administration appears receptive to moving to undercut Moscow’s hold over the energy sector. White House press secretary Jay Carney said this week that while the Department of Energy is approving terminal requests on a case-by-case basis, the US would look for ways to wean Ukraine from its “dependence on Russian gas”.
A senior US official said the State Department was supportive of introducing substantial gas exports abroad as a move to counteract Russia’s influence.
Carlos Pascual, a former American ambassador to Ukraine, who leads the State Department’s Bureau of Energy Resources, told the New York Times that opening global markets to US exports “sends a clear signal that the global gas market is changing, that there is the prospect of much greater supply coming from other parts of the world”.