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Russia-Ukraine Standoff Prompts Energy Fears in Europe

Russia-Ukraine Standoff Prompts Energy Fears in Europe
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Gas prices have risen in Europe over fears the standoff between Russia and Ukraine could result in disruptions to supply and possibly undermine the continent’s economic recovery. However, it’s not the first time such a dispute has hit Europe’s energy supplies -- and this time officials say they’re better prepared.

Russia supplies around a quarter of Europe’s gas. Ukraine sits between them both, so any potential for regional conflict has a direct effect on this vital energy supply line.

“The prices have risen in the traded market over the past couple of days because of anxiety about the availability of gas over both the medium and the long term,” said Simon Pirani, a senior research fellow at Britain's Oxford Institute for Energy Studies.

Ukraine itself is highly reliant on Russian gas. The Russian firm Gazprom says that beginning next month, it will raise the cost of gas it sells over the border. The Ukrainian state-owned firm Naftogaz owes Gazprom around $2 billion.

The European Commissioner for Energy, Gunther Oettinger, said Tuesday the EU would pay Ukraine’s gas bills, adding that there are no immediate concerns of shortages in Europe.

“At the moment, in member states, the gas situation is good. We’ve had a mild winter, our storage capacity is fuller than it was last year and we’ve got reserves everywhere,” said Oettinger.

In 2006 and in 2009, Russia cut off gas supplies to Ukraine over price disputes -- causing subsequent shortages in Europe. Cold winters and low stockpiles meant the gas price soared.

Europe is now less reliant on Ukraine as a transit route for Russian gas. The North Stream pipeline, which was opened in 2011, takes gas directly under the Baltic Sea to Germany -- Russia’s biggest European customer.

“There’s also been quite a lot of work done in central and eastern Europe as a result of the 2009 dispute when people realized that Russia-Ukraine disputes could have implications further down the pipeline,” said Pirani.

That includes the South Stream project. President Vladimir Putin attended an on-site ceremony as the first pipes were welded together in 2012. The pipeline will run along the bottom of the Black Sea directly to southeast Europe. It’s due to come online in 2015 and reach its full capacity -- roughly half of Europe’s demand -- by 2018.

But hostility between Moscow and Europe is growing over Russia’s apparent troop deployment in Crimea, which Moscow denies.

The EU has threatened as-yet unspecified sanctions. So would Russia retaliate by turning off the gas taps to Europe? Unlikely, thinks Pirani.

“Gazprom’s a commercial company, it has to make money, and it wants to deliver its gas to its customers in Europe,” said Pirani.

Analysts say the current tensions will likely make Europe redouble its efforts to find alternative energy supplies and cut its reliance on Russia.