Global Economics

Cold War Haunts EU Gas Crisis Response


The showdown between Gazprom and Ukraine over gas prices may be a commercial dispute but many Europeans can't help seeing it in Cold War terms

Ex-Communist EU states are again accusing Russia of using energy as a political weapon in the Ukraine gas crisis, despite European Commission efforts to paint the dispute as a purely commercial matter.

"It's big politics from 2004 [when Ukraine broke away from Russia's control in the Orange Revolution]," a senior Lithuanian official told EUobserver on Monday (5 January).

"Russia is saying: 'You have to become a vassal state, then you get what you want.' All the neighbouring states of Russia are still fighting for their independence," he added. "Lithuania is paying one of the highest prices for gas in Europe and this is also as a result of Russian attitudes to our policies."

Russia cut Ukraine's gas on 1 January after accusing Kiev of not paying its 2008 bill and asking it to pay $450 (€330) per thousand cubic metres of gas in 2009, compared to $180 in 2008 and compared to average European prices of $450 to $500.

The Paris-based International Energy Association (IEA) has questioned the commercial logic of the move.

"To adjust prices so rapidly will cause problems for Ukrainian consumers," IEA expert Ian Cronshaw told this website. "Russia's call for higher prices is interesting because it reflects the abnormally high oil prices at the beginning of 2008. Those prices are dropping and should keep falling in 2009."

EU deputy ambassadors met in Brussels on Monday to exchange technical information about gas supply shortfalls. Ukraine transit of Russian gas accounts for one fifth (about 300 million cubic metres) of EU daily consumption.

But the first political-level debate will take place at an informal gathering of EU foreign ministers in Prague on Thursday, with some EU officials expecting a renewed push for the Nabucco pipeline project, designed to bring in gas from Central Asia to the EU, bypassing both Russia and Ukraine.

Russia-Ukraine rows over gas prices have taken place every winter since the Orange Revolution, with the worst spat in 2006 seeing Ukraine transit shipments to the EU plunge by 200 million cubic metres a day, compared to the current shortfall of around 50 million cubic metres.

The 2006 crisis was widely interpreted as a Russian attempt to destabilise the post-revolutionary government in Ukraine.

But the European Commission is depicting the latest crunch as a purely commercial dispute between Russian supply firm Gazprom and Ukraine's state-owned gas buyer, Naftogas.

RosUkrEnergo - an intermediary company co-owned by Gazprom and Ukraine oligarch Dmitry Firtash, which buys gas from Gazprom and sells it on to Naftogas - has reportedly filed a law suit against Naftogas at an arbitration court in Stockholm to get its 2008 money.

"It is a commercial dispute and it has to be solved by the two parties," European Commission spokesman Ferran Tarradelas said on Monday, adding that the commission's main concern is EU consumers, which have not yet been affected by the spat.

A delegation of commission and Czech EU presidency officials is due in Kiev on Monday and Tuesday on a "fact-finding" mission to see how bad things might get, with another set of EU officials to meet Gazprom delegates in Berlin.

Some EU officials believe a Russia-Ukraine deal will be struck by Wednesday, in time for Russian officials to settle down for the Russian Orthodox Christmas holiday.

But the IEA in Paris is less optimistic, pointing out that while EU gas stocks (at 70 to 90 percent full) are higher than back in 2006, this week's cold snap in Europe will see gas demand shoot up.

"The bad news is the weather has turned. There's a nice little snowfall in Paris today," the IEA's Mr Cronshaw said.

"There doesn't seem to be a lot of momentum to resolve the issue. We're getting a little worried it's dragging on for a week already, whereas in 2006 it lasted just a few days."

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