Friday, March 2nd, the chairman of the board of the Russian company
Gazprom, Alexey Miller, announced that the company has been forced to
begin terminating its gas delivery and transit contracts with
Ukraine’s Naftogaz in the Stockholm arbitration institute. This was
Miller’s reaction to the Stockholm arbitration’s resolution that
ordered Gazprom to pay Naftogaz $2.56 billion.
other words, Gazprom has been compelled to break off contracts with
Ukraine’s Naftogaz due to the asymmetric Stockholm decision which
violated the balance of forces and parties’ interests. Miller also
remarked that, given this situation, Russia is not going to solve
Ukraine’s economic problems at its own expense and will immediately
start terminating contracts.
day before, on March 1st, Gazprom returned advance payments from
Naftogaz for gas deliveries in March, arguing that there is no
additional contract. Naftogaz and the Ukrainian leadership in turn
accused Gazprom of irresponsible behavior. Ukrainian President
Poroshenko threatened to have Russian property confiscated (including
Nord Stream pipelines) all over the world. According to Poroshenko
and Naftogaz head Kobelev, Gazprom’s actions are supposedly
indicative of the company’s unaccountability to European consumers.
facing an acute gas shortage, Ukraine has been forced to save on blue
fuel. On social networks, Poroshenko has launched the Prikruti!
campaign which calls for patriots to turn down the temperature in
their homes. Classes in universities and schools have been cancelled,
and kindergartens have been closed. These urges by authorities have
drawn violent indignation on the part of ordinary Ukrainians, who
have lashed back on social media with accusations that Poroshenko is
a liar and hypocrite. Meanwhile, the temperature in many homes is
already dangerously low, which I can personally confirm based on the
testaments of my relatives living in Ukrainian-occupied Donbass and
these present circumstances, Ukraine has to seek additional means to
purchase gas from its European neighbors. Considering the fact that
Europe is now at peak consumption amidst an unexpectedly severe
winter, this will be difficult to pull off. What’s more, Ukraine
cannot hope for any preferential prices in the likes of what it is
used to buying gas from Russia for.
March 2nd, reports appeared in Ukrainian media that Poland is ready
to reverse its gas deliveries to Ukraine. According to some Ukrainian
gas market experts, the cost of such might be double (from $300 to
$600 for 1,000 cubic meters). These experts also blame the Naftogaz
leadership for irresponsible behavior, especially Kobelev and his
team for not preparing the country for such force majeure conditions.
state propaganda of the post-Maidan regime, which has for the last
four years proclaimed the achievement of energy independence, is
therefore exposed as bankrupt. Since 2015, Kiev has categorically
refused to buy the “wrong” gas from the “occupier”, instead
buying reversed gas from Poland or Slovakia – which is still
Russian, but with a mark up from the mediator. Now, suddenly, Ukraine
has agreed to buy gas directly from Russia, but was offended and
surprised at refusal.
motivated Gazprom’s position and just how appropriate is this sharp
reaction? To answer this question, we need some brief backstory.
the course of the 1990’s and early 2000’s, Russian gas was
subject to “unauthorized extraction”, i.e., large-scale theft,
from the Ukrainian gas transport system. As noted by Ukrainian
experts, in the early 2000’s all major holdings in Ukraine were
obtained by virtue of stolen Russian gas wealth. Thanks to this, for
example, the political celebrity “gas princess”, Yulia
Tymoshenko, rose to power and fortune. In addition to stealing gas,
Ukraine also received ultra-favorable prices, but still did not
return any accumulated debts. Therefore, the construction of gas
pipelines for bypassing Ukraine to transport Russian gas to European
consumers is not so much of an urgent task as it is a long overdue
back to Miller’s statement. Miller, like many Ukrainian experts,
believes the Stockholm resolution to be a manifestation of double
standards. Simply put, Swedish lawyers, in imposing a fine on Gazprom
on behalf of Naftogaz’s suit, were guided by the following: in the
two companies’ contract, the rule of “pump and pay” was clearly
spelled out. According to the current contract, Gazprom was committed
to pumping through Ukraine’s gas transport system 110 billion cubic
meters a year. In 2017, the total volume amounted to only 91 billion.
This would seem like a violation of the agreement. But there is a
second side of the coin.
contract also spelled out another rule: “take and pay”, which
obliges Naftogaz to purchase a declared volume of gas (51 billion
cubic meters a year). However, following Crimea’s reunification
with Russia, the Ukrainian authorities’ economic blockade of
Donbass, and the overall collapse of Ukrainian industry, gas
consumption fell by half or even three times. This objectively made
purchasing previously declared gas volumes economically impractical
and financially impossible given the default state of the Ukrainian
economy. Ukraine justified its case with this argument in Stockholm.
Miller reasonably objected to this and refused to pay for Ukraine’s
problems at Russia’s expense.
a selective approach, or what Miller called double standards, was the
name of the game in Stockholm. One principle was taken into account
while the other was discarded. Meanwhile, the moral unscrupulousness
and professional incompetence of Naftogaz was called out on March 3rd
even by Ukraine’s Prime Minister Groysman, who criticized Kobelev
for the energy crisis in the country.
obvious reasons, European consumers are not interested in the details
of gas disputes between Russia and Ukraine. But they are extremely
interested in the uninterrupted supply of Russian gas to their homes,
businesses, and social facilities. Gazprom supplies the EU with a
third of its total gas volume, and this amount is only increasing.
Russian gas remains significantly cheaper than American liquified
natural gas or liquified natural gas from the Shah Deniz field in the
objective and unbiased analysis of the essence of this conflict
yields the following conclusion: Stockholm arbitration’s unilateral
decision is wrong because it acted not as an arbitrator, but as a
Naftogaz lawyer. Do European consumers who regularly pay Gazprom
deserve to freeze because of Ukraine’s whims? Of course not.
I do not believe that this dispute will go that far. Some Russian
experts are already arguing that Gazprom is deliberately issuing
fierce statements in order to get the most favorable starting
conditions for new negotiations. Indeed, Miller’s office is already
demanding a review of the Stockholm arbitration decision. For Europe
it is only becoming all the more obvious that there is no alternative
to Nord Stream that is more economically profitable and politically
shielded from Moscow-Kiev conflicts. This, in my opinion, is the main
point to be drawn from an analysis of the ongoing “gas wars.”
Popov is a Rostov State University graduate with a PhD in history and
philosophy. In 2008, he founded the Center for Ukrainian Studies of
the Southern Federal University of Russia, and from 2009-2013, he was
the founding head of the Black Sea-Caspian Center of the Russian
Institute for Strategic Studies, an analytical institute of the
Presidential Administration of Russia. In June 2014, Popov headed the
establishment of the Representative Office of the Donetsk People’s
Republic in Rostov-on-Don and actively participated in humanitarian
aid efforts in Donbass. In addition to being Fort Russ’ guest
analyst since June, 2016, Popov is currently the leading research
fellow of the Institute of the Russian Abroad and the founding
director of the Europe Center for Public and Information Cooperation