Friday, January 16, 2015

The Vineyard of the Saker: Russia Leaves the European Commissioner for Energy Union out in the Cold

by Aleksei Kettunen


Yesterday on Wednesday the EU negotiated with Gazprom in Moscow. The EU negotiators had three aims:

• Pressure Russia into extending the special winter pricing on gas supplies to Ukrainian due to end in March,
• Force Russia to further unilateral concessions by forcing all European energy purchases to happen through a new “European Energy Union”,
• Pressure Russia to resurrect the canceled South Stream gas pipeline project and build it in accordance with the restrictive rules of the Third Energy Package.

The Russian response was a cold shower.

Firstly, Gazprom said there is no need for a special summer agreement on Ukrainian gas purchases, as a valid contract already exists.

In practice, this means that all the concessions Kiev has received for the winter season are temporary and there is no space for negotiations. If the EU wants to ensure their gas transits through Ukraine then it must put pressure on Kiev to comply with existing agreements. If Kiev needs gas it cannot afford to pay – thus endangering transit deliveries to EU countries – it is not Russia's problem. The same applies to Kiev's gas debts; the EU will have to pay both the Ukrainian gas debts and any future gas purchases.

Secondly, Gazprom announced that the South Stream gas pipeline project is dead and will not be realized. The project collapsed under US and EU pressure. The greatest obstacle turned out to be EU's Third Energy Package. It heavily restricts how Gazprom could use their own pipeline; Gasprom could only use 50% of South Stream's capacity and would be forced to offer the remaining 50% of the transportation capacity to third parties. Although all of the agreements between Gasprom and the various transit and consumer countries were made before the Third Energy Package entered into force, the European Commission now demands that it is applied retroactively.

Russia's solution is as follows: Gazprom will build the pipeline to Turkey and extend it the Turkish-Greek border. The pipeline will end in a gas distribution hub near the EU border. If the EU wants to buy gas, it will have to build a pipeline to Turkey at its own expense. It will also need to expand the gas transport capacity between its South European member countries – and do so under the constraints imposed by its own Third Energy Package.

The final punch to EU arrogance was Gazprom's declaration that after the completion of the gas hub and the Turkish pipeline Gazprom will end all gas transit through Ukraine. Russian gas will only be available through Turkey! The Ukrainian pipeline network will be used exclusively supply gas to Ukraine. Gazprom based its decision on Ukraine's instability and the high transit risks.

Complete story at - The Vineyard of the Saker: Russia Leaves the European Commissioner for Energy Union out in the Cold

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