News / Economy

Analysts: Ukraine Dispute Not Likely to Cut Russian Gas Sales to Europe

FILE - This Wednesday May 21, 2014 file photo shows a gas pressure gauge in Bil 'che-Volicko-Ugerske underground gas storage facilities in Strij, outside Lviv, Ukraine. Russia on Monday, June 16, 2014
FILE - This Wednesday May 21, 2014 file photo shows a gas pressure gauge in Bil 'che-Volicko-Ugerske underground gas storage facilities in Strij, outside Lviv, Ukraine. Russia on Monday, June 16, 2014
Analysts tell VOA that Russia should not make any attempt to interrupt natural gas deliveries to Europe as part of its dispute with Ukraine. Russia loses in any attempt to interrupt the flow of natural gas to Europe, said two analysts who spoke with VOA.

Russia cut off the flow of natural gas to Ukraine this week after Kyiv failed to pay $2 billion it owes Gazprom, Russia's state-owned gas monopoly.

Moscow has promised no disruption in service to its natural gas customers in the rest of Europe, but the Kremlin could change course if Ukraine tries to meet its energy needs by siphoning off gas from the pipeline carrying fuel to the West.

About one-third of the European countries' natural gas supply comes from Russia, and half of that flows through a pipeline that crosses Ukraine.

No 'dire' situation

One analyst interviewed by VOA Wednesday, Gary Schmitt of the American Enterprise Institute in Washington, says Europe can manage its energy needs, no matter what happens.

"This is not the optimal situation, but on the other hand, it's not simply the dire situation that it has been in the past," Schmitt said. "Europe actually could get by with a cutoff from Ukraine, partially because the weather has been much milder, but also because there have been these marginal increases in world gas supplies."

Even if Russia cuts gas shipments to Europe, he predicted that countries in the European currency zone likely would not face any reduction in their ability to generate electricity.

Europe already has terminals in place for liquefied natural gas (LNG) imports and has more under construction, Schmitt said. In addition, there are more pipelines in place linking energy producers to consumers than there were just a few years ago.

Additional energy sources

LNG imports are not yet extensive enough to replace Russian gas delivered by pipeline, the analyst conceded. "On the other hand," he said, "a lot of gas comes through a gas pipeline that avoids Ukraine altogether and goes straight into Germany. And that capacity is not, in fact, utilized fully."

Tom Elliott with the deVere Group, a London-based international financial consultancy, agrees that any interruption in Russian gas deliveries to Europe would be only a temporary problem.

"Let's assume Russia cannot maintain supplies to its European clients," he told VOA. "You suddenly find [that] other energy sources become valid."

Still, Elliot said Western Europe and the Eurozone economies would be "vulnerable to Russia playing games with gas supplies" for a year or so.

Will Europe pay Ukraine's gas bill?

If Ukraine started siphoning off gas from the pipeline, and Gazprom responded by halting gas supplies to Europe through Ukraine, Elliott predicted, Europe would "probably pay the gas bill for Ukraine," and that would be money well spent.

"It is a point not often made in the West, but the Russians are very conscious that the West has actually won the ideological and the political battle in much of Ukraine," Elliott said. Not in eastern Ukraine, but in the western part of the country. Under the circumstances, he added, the Western powers could cement those bonds with Ukraine by financing Kyiv's gas bill.

Further, he says, by demanding that Ukraine pay for its gas in advance actually gives the Kremlin less leverage. Using the analogy of a drug dealer, Elliott said a supplier who extends credit to his customer can then "demand huge amounts of interest, and basically has the clients in a state of terror."

Elliott said Russia would lose that advantage - and whatever geopolitical hold it still has over Ukraine - if it cuts off Kyiv's credit.

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