The situation reminds Europe of 2009, when gas supplies, representing 28% of its inflow from the east, were cut for more than two weeks in violation of all bilateral and multilateral agreements. Bulgaria was left in the dark for three days, putting a stop to all its industrial activities and leaving its population in the grip of the freezing weather. The EU learned the lesson and subsequently launched a series of provisions to secure its internal gas market. In 2010, the European Parliament voted the so-called SOS regulation (Security of Gas Supply regulation) which ensured a package of binding provisions for Member States to implement, ranging from the compulsory stocks to meet 30 days of demand in case of disruption of the single largest gas infrastructure, the setting of emergency and preventive action plans, to physical interconnections among countries (interconnectors and reverse flow pipelines). The directive was backed by funding through the European Energy Programme for Recovery in 2009 and more thoroughly by the Infrastructure Plan. Beyond these specific tools, the EU rethought its grand gas strategy, stressing the need for enhanced energy security through the building of an integrated gas and electricity market in the third energy package so as to facilitate energy flows and solidarity among Member States, the diversification of the energy mix in the various Member States, the diversification of suppliers and the backing of new gas routes to Europe supported by the new grand tool the Infrastructure Package mentioned above. The package provides along a variety of measures, technical and financial support for projects of common interest and in particular interconnectors, as a way to put in practice the energy solidarity mentioned in the Lisbon Treaty. Last but not least, the EU tried to enhance its energy security through its neighborhood policy and the promotion of the energy community. Has Europe been successful?

Surely, the context is very different than in 2009. The EU is in a lesser need for gas, due to a mild winter, but also due to the structural impact of the economic crisis and recent competition from coal in the power sector. This, as well as the provisions set up in the SoS regulation, explains why gas stocks are this year very high in a large number of countries. Germany is said to hold two months of supply and according to Gas Storage Europe, European inventories were 49% full as of March 2 [Bloomberg], which represent about a month and a half of Ukrainian gas supplies. Stocks are historically high at this time of the year. The share of Russian gas exports through Ukraine has since been significantly sized down from 80% to 60% since the opening of the North Stream pipeline which directly links Russia to Germany, and more could be done. The North Stream gas pipeline constructed since is only 30% full, and could carry more gas in case of disruption; and so could the pipeline transiting through Belarus to Poland. Additionally, LNG terminals are not full, and Europe could buy additional gas on spot markets, though at a high price. All these transit routes are indeed more expensive.

Other initiatives from the EU have been less successful. Ukraine was prompt to abandon the Association Agreement with the EU, and the binding provisions of the Energy Community, when Moscow offered a significant cut of gas prices in December 2013 as well as financial loans. Reverse gas flows to Ukraine from EU Member States such as Poland, Hungary and more recently Slovakia are not commissioned yet; and interconnectors meant to break south east Europe’s isolation from European gas markets have been delayed or put on hold. Initiatives to promote the southern gas corridors have been reshaped to fit with economics, with final investment decisions finally taken for the TANAP and TAP pipelines linking Azerbaijan to Europe via Turkey for a volume of 16bcm of which 10bcm are meant for Europe. Meanwhile Ukraine is likely to remain crucial for south east European countries. A new gas cut will lead analysts to the same conclusions than in 2009: while Western Europe may not suffer as much, Eastern Europe and in particular south eastern European countries are likely to face difficulties. However, less than in 2009 as their gas consumption has been reduced and in the meantime they have developed their storage capacity, with some countries, such as Poland, even building strategic gas storage.

The EU is therefore keen to avoid a major crisis, distancing slightly itself from the US approach, and offered to pay for unpaid Ukraine gas bills. This crisis could serve Russian interests in developing the South Stream corridor project which bypasses Ukraine, if it appears economical. Russia in fact has already started to build the pipeline. The EU if it decides to engage more with Ukraine in a stand-alone perspective, it needs to think of how investments into Ukraine gas grid could be met, as well as other necessary reforms implemented given the fact that opacity appears as the main rule for Ukrainian gas market functioning and that politics have proven to be anything but predictable. Investments in the gas transmission grid are however related to a continuation of large volumes of Russian gas transiting through Ukraine. As always this is an equation which involves not only Ukraine and the EU, but also Russia. Europe will have to show political unity on this issue, and this appears to be far from being achieved.

For more reading:
Susanne Nies, Ukraine: A Transit Country in Deadlock,  Ifri, Les Etudes, 2009 
Bloomberg, Europe Gas Storage Seen Enough for 45-Day Ukraine Supply Cut, March 2, 2014 available at http://www.bloomberg.com/news/2014-03-04/europe-gas-stockpiles-seen-enough-for-45-day-ukraine-supply-cut.html