It Begins: Gazprom Warns European Gas "Supply Disruptions" Possible

Tyler Durden's picture

We had previously warned that Putin's "trump card" had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia's Gazprom warned that not only could it cancel its "supply discount" as Ukraine's overdue payments reached $1.5 billion but that "simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe." And with that one sentence, Europe will awaken to grave concerns over Russia's next steps should sanctions be applied.

 

It would appear this is the most important map in Europe once again...

 

 

Some recent history...

In late January, Ukraine asked Russia for deferral of payments for gas supplied in 2013 and in early 2014. President Vladimir Putin said Ukraine’s debt totalled $2.7 billion then.

and then...

On March 1, Gazprom’s spokesperson Sergai Kupriyanov said the gas holding could cancel its gas supply discount for Ukraine as its overdue debt for gas reached $1.5 billion. This figure includes debts not only for last year’s supplies, but also for the current deliveries.

 

"The situation with payments is worrying," said Andrei Kruglov, Gazprom's chief financial officer.

"Ukraine is paying but not as well as we would like it to. We are still thinking about whether to extend the pricing contract into the next quarter based on current prices."

And now today...

Russia’s gas giant Gazprom said on Monday it did not rule out possible disruptions of gas supplies to Europe over Ukraine’s political situation.

 

Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the monopoly said in its materials, adding that it would do its utmost to reduce export risks.

 

“We will further invest into other export-oriented projects such as South Stream and will enhance our LNG (liquefied natural gas) production and export capacity. We also increase our access to underground gas storage facilities in Europe.”

 

Andrei Kruglov, Gazprom’s chief financial officer, said at the moment Russia had been supplying gas to Ukraine according to schedule, although the latter failed to fulfil its debt obligations.

With that last sentence providing exactly the 'real world' cover Gazprom needs to cut its supplies "through" Ukraine and thus to Europe...

And, as The Guardian notes, this would...

not the first time Russia has used gas exports to put pressure on its neighbour – and "gas wars" between the two countries tend to be felt far beyond their borders. Russia, after all, still supplies around 30% of Europe's gas.

 

In late 2005, Gazprom said it planned to hike the price it charged Ukraine for natural gas from $50 per 1,000 cubic metres, to $230. The company, so important to Russia that it used to be a ministry and was once headed by the former president (and current prime minister) Dmitry Medvedev, said it simply wanted a fair market price; the move had nothing to do with Ukraine's increasingly strong ties with the European Union and Nato. Kiev, unsurprisingly, said it would not pay, and on 1 January 2006 – the two countries having spectacularly failed to reach an agreement – Gazprom turned off the taps.

 

The impact was immediate – and not just in Ukraine. The country is crossed by a network of Soviet-era pipelines that carry Russian natural gas to many European Union member states and beyond; more than a quarter of the EU's total gas needs were met by Russian gas, and some 80% of it came via Ukrainian pipelines. Austria, France, Germany, Hungary, Italy and Poland soon reported gas pressure in their own pipelines was down by as much as 30%.

Short of an actual war, the consensus appeared to be, Europe's gas supplies are unlikely to be seriously threatened (since Putin relies on those revenues)... that is clearly about to change with Gazprom's comments.

As the following image from Agence France Presse (created at the end of last year) indicates, things are about to get a lot more problemati for Germany, France, and Italy...