Ukraine gas talks stall again. What that means for winter in Europe. (+video)
Ukraine gas talks resumed in Brussels Wednesday, with early reports indicating a deal again could not be reached to resume Russian gas flows to Ukraine. As temperatures drop, officials are increasingly concerned about a lack of the vital winter heating fuel.
Temperatures are already dropping below freezing in Kiev, and officials are increasingly concerned about a lack of the vital winter heating fuel in the colder months ahead. Should it fail to strike a deal with Russia, its primary supplier, Ukraine will scramble to ration the limited supplies it has in storage. It is already working to expand flows of gas from its European neighbors to the west to compensate for missing Russian supply. It may also be compelled – as it has in previous energy crises – to siphon off Russian gas traveling to Europe through Ukrainian pipelines.
Either way, a lack of Russian supply in Ukraine – combined with rising European demand for the fuel in cold weather – could make for an expensive and dangerous winter across the Continent.
"Ukraine can survive without Russian gas through the winter, though [Ukraine's state-owned gas company] Naftogaz may be forced to reduce transit flow to Europe," Mikhail Korchemkin, head of Malvern, Pa.-based East European Gas Analysis, writes in an e-mail. "There are not enough storage facilities along the pipeline route through Ukraine to Moldova, Romania, Bulgaria, Greece and Turkey. Bulgaria may be short of gas if it gets really cold."
Ukraine typically relies on Russia to meet half of its natural gas needs, and about half of Europe's Russian gas imports first flow through Ukraine. In June, Russia shut off supplies to Ukraine after the latter accumulated billions in unpaid gas bills. Ukraine, Russia, and the European Union met in Brussels Wednesday in another last-ditch effort to resolve longstanding disagreements over natural gas supplies. Those talks appeared to fall short of a deal, despite negotiations late into Wednesday night, according to Reuters.
The three parties reached a promising tentative deal earlier this month that would supply Ukraine with at least 4 billion cubic meters of Russian gas – about what it needs to safely make it through the winter. There's even an agreement on the price: $385 per thousand cubic meters.
But Moscow, Kiev, and Brussels continue at loggerheads over the contractual and legal details of an agreement that could have long-term implications for Ukraine (and Europe's) energy dependency on Russia. Another stumbling block is how much Ukraine owes Russia for past gas supplies, and who will help cash-strapped Ukraine pay it off. Russia puts that figure at $4.5 billion, while Ukraine and the EU say it's $3.1 billion. For now, the questions remain unanswered.
"Negotiations are ongoing and likely to continue until late in the evening," the European Commission said in a statement late Wednesday. "In case of agreement, the press conference is envisaged to take place tomorrow morning at 8:30 a.m."
Even without a deal, there's still hope Ukraine can make it safely through the winter. But it will take careful planning, conservation, and support from Western neighbors.
"In principle, having enough stock in underground gas storages and gas reverse flows from the West, Ukraine will be able to survive this winter but only if consumption will fall at least at 20% compared to the previous year," Dmytro Naumenko, an energy analyst at the Kiev-based Institute for Economic Research and Policy Consulting (IER Kyiv), writes via e-mail. "This will only happen if this winter will be mild enough but nobody is 100% sure about this."
Without a cut in demand and expanded reverse gas flows from Slovakia, Ukraine will run out of the fuel by mid January 2015, according to an analysis by IER Kyiv. At that point, Ukraine would need to resume imports of Russian gas.
[Editor's note: This piece was updated late Wednesday afternoon to include reports that the latest Ukraine gas talks fell short of deal.]