A few days ago, when we wrote our "explainer [12]" on the need for Russia to have an alternative pathway for its gas, one which bypasses Ukraine entirely and as the current "South Stream" framework is set up, crosses the Black Sea and enters Bulgaria before passing Serbia and Hungary on the way to the Central European energy hub located in Baumgarten, Austria, we said that "one short month after Putin concluded the Holy Grail deal with Beijing, he not only managed to formalize his conquest of Europe's energy needs with yet another pipeline, one which completely bypasses Ukraine (for numerous reasons but mostly one: call it a Plan B), but scored a massive political victory by creating a fissure in the heart of the Eurozone, after Austria openly defied its European peers and sided with Putin."
[13]
Today we find just what said Plan B is.
As Itar-Tass reports [14], citing Gazprom CEO Alexei Miller, "Russia’s gas giant Gazprom does not rule out gas transit via Ukraine may be stopped completely."
"What happened once is a tendency, nothing happens incidentally. In 2009, gas supplies were stopped completely — so, we know precedents,” Miller told a briefing on Friday.
Clearly, this is bad news for Ukraine: Gazprom not interested in participation in Ukraine’s gas transportation system (GTS), “train has departed”, CEO said.
“The train has already departed. It seems it departed yesterday,” Miller said. “It belongs to no one. The GTS has no owner,” he said. “The GTS of Ukraine does not belong to Naftogaz but to the Ukrainian government. Before discussing things with someone regarding modernization and cooperation, it should appear on the balance sheet of this or that economic entity.”
“Property and legal issues should be resolved first,” Miller said.
In fact, the civil war torn country may soon lose all leverage it had with both Europe and Russia as a transit hub for natural gas, which also means that it is quite likely that Ukraine is about to be abandoned by its western allies who will no longer have any practical use for it.
The Gazprom chief added that “a dozen Ukrainian laws need to be changed to be able to do something with the GTS.”
Confirming that Ukraine's leverage at least with Russia is now effectively zero, Gazprom's CEO also said that “As for the continuation of negotiations with Ukraine, today there is no subject for talks. First, they must repay their debts."
“The gas price for Ukraine is fair - this price is fixed in the contract,” he stressed.
There have been no requests on the part of Ukraine’s national oil and gas company Naftogaz Ukrainy on a change of the transit deal with Russia, Alexei Miller said. Miller told journalists that it would be bad news if such requests had been received.
At least we now know what the Ukraine endgame will look like: as Russian transit through the country is completely cut off, the nation will lose all strategic importance first to Russia and then to Europe, which is still over-reliant on Russian gas (see map below), but which will increasingly turn its attention to the countries which the South Stream passes through.
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And speaking of South Stream countries, there is increasing speculation that the main reason why none other than the poorest EU member country, Bulgaria, just suffered its worst bank run in 17 years, and one which has paved the way to early elections [16], is precisely that: to provide Europe with a government which will be more focused on Brussels' interests, instead of the current socialist regime, whose allegiance to the Kremlin is said to take precedence.
After all, now that Ukraine is yesterday's news, pay close attention to how Europe treats all the South Stream countries, starting with Bulgaria, and going through Serbia (read "Serbia could go bankrupt within a year and end up “in the position of Greece”, the country’s new prime minister has warned [17]"), Hungary and of course, Austria.
Finally, and perhaps most notably, is last week's announcement by Gazprom CEO Miller that Gazprom has good chance, and is interested in discussing buying a stake in the Baumgarten gas hub (see more on why Austria is suddenly so important to both Russia and Europe here [12]).
As Bloomberg reported previously, citing Miller, "The talks we had about South Stream also were a catalyst for the continuation of our talks about participating in the gas hub. We are interested and I think we can discuss a specific percentage of participation." The Russian gas producer and exporter discussed with OMV participating in gas trading in Baumgarten. Miller also added that work on South Stream link to Europe going on schedule, first deliveries to Bulgaria, Serbia, Turkey; capacity to reach 63bcm by end 2017.
In other words, as Europe and the US remains still focused on Ukraine, the one place which now matters most for Europe's energy future is Austria: a country where Gazprom, and Putin of course, are quietly sowing the seeds of Russia's energy dominance tomorrow. As for the feeder countries, especially Bulgaria, pay close attention as the US "foreign service" does all it can to destabilize the local government and financial system as a last ditch attempt to wrest Russia's trump card out of its hand. Something tells us Putin will hardly let it go easily.
