Nordstream: Just-in-time?
Last week the gritty Russian/Ukrainian gas relationship was back in the press. This time the issue appeared to be Ukraine’s efforts to secure lower prices for its consumers - perhaps even on a par with Russia’s domestic consumers. The Ukrainians must surely know that to qualify for those kinds of special prices available previously only to politically compliant neighbors - Ukraine would have to return to some form of pre-Orange Revolution relationship with Mother Russia.
That was not the signal inherent in Ukraine’s recent signature of the Energy Community Treaty. Perhaps President Yanukovitch thought he had achieved some measure of such a relationship by giving Russia free reign in the Black Sea for an additional 25 years. Unfortunately, he has been brought to order by Prime Minister Putin who offered the prospect of lower gas prices in exchange for the virtual reintegration of Ukraine into a Greater Russia. President Yanukovitch should be under no illusion that one of the durable as-yet-unmet pillars of Russian policy in Ukraine is to regain control over its gas transit infrastructure.
If that wasn’t enough gas news from Ukraine, European gas customers have been informed of the re-emergence of gas market intermediaries Rosukrenergo and its owner, the resilient Dmity Firtash. Both Rosukrenergo and Dmitry Firtash had been sent packing as part of the resolution of the last Russo-Ukrainian gas spat that saw gas supplies to Europe cut for nearly two weeks in early January 2009. Maybe European customers needn’t worry this time about any new rents the gas intermediaries might hope to extract because European prices are indexed to stubbornly high oil prices. On the other hand, Russian citizens should probably be concerned at any new loss of rents to the intermediaries because these will come out of Gazprom’s net-back and lower the Russian Treasury’s tax revenues.
Perhaps Rosukrenergo only reappeared in the news because a court ruling has concluded that stored gas taken from them in 2009 may in fact have legally belonged to them. Compensating for that gas will put quite an unexpected hole in Ukraine’s cash flow, and could well set the stage for more non-payment tensions along the gas transit system this winter. But European gas storage is relatively full and after the 2006 and 2009 gas supply problems, better plans are in place in Europe for any eventual disruption. What is new this time is the opening of Nordstream later this year which will provide an alternative route for gas to heat European homes if there are problems across Ukraine.
In the short term, one can only hope that European gas operators are preparing for the eventuality that a large volume of gas may need to flow north-south from Nordstream into European markets rather than east-west from the Ukrainian system. A gas dispute just now, as Nordstream comes on stream providing direct access to European gas markets, bypassing the unreliable “near-abroad” will be convenient in convincing any remaining Nordstream skeptics that surely Europe needed the 30 BCM of redundant capacity via Nordstream to carry redirected Russian gas.
For the longer term, Europeans should not view their relatively secure position this year as a sign that their gas security concerns are over. Russia is still not making the kinds of investments it needs upstream, especially if we take seriously Prime Minister Putin’s repeated commitments of gas to China. Gazprom and CNPC have just agreed key elements of a deal to supply 30 BCM of gas to China beginning in 2015 - albeit not prices.
Diversity of suppliers and routes, debottlenecking and reinforcement of the European grid and a convergence in regulatory and pricing policies across Europe still remain the best ways to insulate European customers from Russian and other gas market vagaries. Europe must hedge Russian gas.
Also available in:
Regions and themes
Share
Related centers and programs
Discover our other research centers and programsFind out more
Discover all our analysesThe Aluminum Value Chain: A Key Component of Europe’s Strategic Autonomy and Carbon Neutrality
The United States of America (US), Canada and the European Union (EU) all now consider aluminum as strategic. This metal is indeed increasingly used, especially for the energy transition, be it for electric vehicles (EVs), electricity grids, wind turbines or solar panels.
The EU Green Deal External Impacts: Views from China, India, South Africa, Türkiye and the United States
Ahead of June 2024 European elections and against the backdrop of growing geopolitical and geoeconomic frictions, if not tensions, between the EU and some of its largest trade partners, not least based on the external impacts of the European Green Deal (EGD), Ifri chose to collect views and analyses from leading experts from China, India, South Africa, Türkiye and the United States of America (US) on how they assess bilateral relations in the field of energy and climate, and what issues and opportunities they envisage going forward.
Electric Vehicles: A Strong and Still Understated Performance
Electric vehicles (EVs) are better for the climate – even in worst-case scenarios. Across its life cycle, a typical European electric car produces less greenhouse gas (GHG) and air pollutants or noise than its petrol or diesel equivalent. Emissions are usually higher in the production phase, but these are more than offset over time by lower emissions in the use phase. According to the European Environment Agency’s report on electric vehicles, life cycle GHG emissions of EVs are about 17-30% lower than those of petrol and diesel cars.
How Can the Green Deal Adapt to a Brutal World?
The European Green Deal has not been planned for the current extraordinarily deteriorated internal and external environment. Russia’s war in Ukraine, higher interest rates, inflation, strained public finances, weakened value chains, and lack of crucial skills pose unprecedented challenges.