Cold winter ahead for EU, Ukraine over Russian gas war

The EU could be caught in the crossfire of Ukraine’s gas gamble with Russia, as a shortfall in supply could mean a cold winter not only for Kiev, but also for the EU, which receives 25 percent of Russian gas via Ukraine.

In October, Ukraine's national oil and gas company Naftogaz said it had 17 billion cubic meters of gas in storage, but Russia’s state-owned energy giant Gazprom says it won’t be enough to heat Ukraine through the winter.

However, Ukraine will require 21.5 billion cubic meters, Deputy Chief Executive Officer Vitaly Markelov said on Thursday. Meanwhile, by the time Ukraine's chilly winter comes, storage will be drained to 14 billion cubic meters, according to Markelov.

“It’s a catastrophe,” Bloomberg quotes Markelov. “In these conditions, the winter transit of Russian gas won’t be possible because storage won’t be enough to compensate for Ukrainian consumer draw downs.”

Europe imports roughly 25 percent of its gas from Russia, 50 percent of which is currently shipped through Ukraine. 

If Ukraine and Russia get tangled up in a gas war over pricing or politics and the pipes are turned off, it would be an energy burden for neighboring European states, as a supply crunch would send prices soaring.

Transit through Ukraine stood at 61 billion cubic meters in the first nine months of 2013, while in FY 2012 the figure was at 84.2 billion cubic meters.

Gas tiffs and pricing disputes over advanced payments have caused major supply disruptions, both in the winters of 2006 and 2009, leaving many customers without heat.

Naftogaz said it will stop buying gas from Gazprom during 2014 after Gazprom CEO Aleksey Miller demanded Ukraine 'immediately' pay $882 million of gas debt, threatening to stop pre-pay deliveries.

President Viktor Yanukovich contradicted Naftogaz’s position, when on Thursday, he said he “hopes for a compromise” with Russia.

Yanukovich was in Moscow over the weekend and met with Russian President Vladimir Putin but no official communiqué was released on their meeting.

Ukraine complains about high prices for Russian gas, that average being around $400 per 1,000 cubic meters, one of the highest prices in Europe. Ukraine currently imports more than half of its gas from Russia, but both countries are making efforts to cut down on business.

Russia is building a maze of pipelines to the north and south, to ensure more reliable supply to European customers, and Ukraine is wooing foreign companies in joint ventures in shale and offshore reserves.

'Political deadlock'

EU Foreigner ministers will convene on Monday, November 18 to decide if they will sponsor Ukraine’s trade association membership. Before the Vilnius summit on November 28-29, Ukraine has to prove it's ready to adhere to EU standards.

"Physically, Yulia Tymoshenko has to be out of the country to put the EU in a position where a positive decision can be made," the WSJ quoted an unnamed diplomat as saying. 

Former Polish Prime Minister, Aleksander Kwasniewski, who chairs the European Parliament's observation mission in Ukraine, said November 19 would be the last opportunity for Ukraine’s parliament to pass a bill freeing Tymoshenko.

Yanukovich has said he has no plans to issue Tymoshenko a pardon, but if the parliament passes a law that allows her to seek medical treatment abroad, it could be an ameliorating enough measure for EU ministers.

EU officials spent the last week in Kiev trying to reach an agreement over Julia, but the failure to release Tymoshenko could be a signal Ukraine isn’t ready to improve their shady justice practices. Tymoshenko was jailed in 2011 for a gas deal she brokered with Russia in 2009 and is seen as politically motivated.

Tymoshenko isn’t the only factor that would leave Ukraine in a political stalemate - rejected by the EU and isolated from Russia.

Ukraine is nearly bankrupt and may require an expensive ($10-15 billion) IMF bailout almost immediately upon its associate membership, a liability the EU has to weigh up. 

"The EU, perhaps, is bankrupt as well, it’s not in position to welcome new members and certainly has no largess," Martin McCauley, an Eastern Europe expert from University of London, told RT.

"But European Union is in a big trouble economically and politically it’s a deadlock. Would Germany, the key country, welcome another EU member, especially one which is bankrupt? The answer is 'no', in the long term 'yes', but in the short term, they have doubts," McCauley said.

Europe has been courting Ukraine into an associate trade membership for the past four years, and has created a geopolitical battle with Russia, who has punished Ukraine moving for it's move west in chocolate bans and long delays at the border.