zloy_odessit (zloy_odessit) wrote,
zloy_odessit
zloy_odessit

Kremlin trying to save face over an awful gas game

Recently, Gazprom officially offered Ukraine's Naftogaz a one-year gas transit contract. But it's not just a contract, but rather, as is traditional for Russians, a package with certain conditions, including: abandoning claims in international arbitration and termination of all legal proceedings; annulling Ukraine's Antimonopoly Committee fine on Gazprom for "violation of economic competition", and withdrawing Naftogaz's petition to the European Commission to initiate an investigation against Gazprom.

That is, in fact, to get an opportunity to make some $3 billion on gas transit, Ukraine will not only have to abandon claims at international courts, worth more than the same $3 billion, but also to allow Russia to safely complete the implementation of its Nord Stream 2, which isn't particularly successful in terms of sticking to the initial deadlines.

As I have repeatedly noted, Nord Stream 2 will not only fail to give Russia access to the European market, fully bypassing the Ukrainian gas transmission system, but also, given the breached deadlines, won't allow Russia to reach maximum capacity in 2020. That's because Nord Stream 2 will initially be launched in test mode only, so the pipe will be able to reach its max load months later.

That is, roughly speaking, taking into account the European energy directives, under which NS2 won't be able to supply more than 27.5 billion cubic meters of gas per year (or 55 bcm without taking them into account), the new Russian pipe will for up to six months be operating with a capacity of 5 bcm to 10 bcm.

Of course, Russia needs a pause in this situation. I would even call it a respite, needed to reach the required capacities and resolve the issue of expanding loyalty among the European politicians regarding the easing of the existing energy rules to allow operations at 100% capacity.

That is why Russia stands firm against signing with Ukraine a 10-year contract and exerts comprehensive pressure on Kyiv, either with Putin promising a 25% discount (we know that Russian discounts are worse than robbery), or with an offer to conclude a 12-month contract on their own terms, which are extremely disadvantageous for Ukraine. At the same time, narratives are being widely spun in the media that Ukraine will "benefit" from Russia's offers and that there can be no other options for Kyiv.

Meanwhile, in the event of the termination of Ukraine transit, Russia will be left with nothing. After all, their pipelines – the Nord Stream with a capacity of 55 bcm, the Yamal-Europe with 32.9 bcm, and the Blue Stream with 16 bcm – will only be able to deliver 100 bcm +/- 10% at maximum capacities, while in 2018 Russian gas exports to the EU amounted to 200.8 bcm.

And therefore, the problem of delivering tens of billions of cubic meters of blue gold is extremely acute for the Kremlin and remains a major headache for Putin. He's also mad over the fact that, in the context of all of these developments, Ukraine has all the bargaining chips in its hands, or rather in its sleeves. But the Kremlin is so far unwilling to play Ukraine's game, while trying to save face over a bad game.

Another question though is whether Ukraine is ready to complete its game exclusively in their favor, withstanding all the pressure that is now mounting.

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