Gas War with Ukraine at the Expense of the Population

The decision of Gazprom to launch a new round of gas wars with Ukraine and break all contracts with Naftogaz creates a “fundamental risk” for the Russian company in its key European market, warns the international rating agency S & P.

The demarche of Gazprom again gives customers “doubts about the reliability of supplies” from Russia and “reduces the attractiveness of Gazprom’s pipeline gas in comparison with LNG, other fuels or alternative gas supplies through pipelines,” the agency’s survey said on Monday.

This will not only hit the market share of Gazprom, but will “affect the decisions of regulators regarding Gazprom’s planned alternative routes,” including the Turkish Stream and Nord Stream 2, the agency added.

Europe is worried about the fate of the transit contract. Last year, more than 90 billion cubic meters of gas, or about half of all deliveries to the EU, passed through Ukraine to the European Union, says Mikhail Korchemkin, Director of East European Gas Analysis.

Breaking off relations “will increase Europe’s distrust of the reliability of gas supplies from Russia.” The reputation of the Nord Stream was already dampened by the winter of 2014-15, when Gazprom cut its pumping, in an attempt to undermine the resource base of the Ukrainian reverse,” he adds.

“The contract with Kyiv is valid until 2019, and the absence of agreements beyond this time makes the Europeans nervous about the fact that even if Nord Stream 2 and the Turkish Stream are launched, transit through the Ukrainian route will be closed without loss of volumes, which Gazprom will not be able to do,” explains S & P analyst, Alexander Gryaznov.

“If such decision is made, it will likely lead to a decrease in export earnings and, as a result, a fall in budget revenues,” warns Head of the Alpari Analytical Department, Alexander Razuvaev, adding that “in addition to taxes and export duties, the state will not receive dividends.”

Eventually, people will have to pay for the gas war in order to compensate the financial losses. Gazprom can lobby for a rise in tariffs within Russia, but, as Razuvaev said: “this will negatively affect the pace of economic growth and is unlikely to please the average Russian.”

Dmitri Dolaberidze

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