Ukraine gas crisis spurs EU energy policy

January 13, 2009

Paul Taylor Great Debate— Paul Taylor is a Reuters columnist. The opinions expressed are his own —

The gas dispute between Russia and Ukraine that has left hundreds of thousands of Europeans shivering in the winter cold is bound to accelerate plodding European Union efforts to build a common energy policy.

The cut-off of Russian gas supplies to Europe via Ukraine highlighted how little progress the 27-nation EU has made in connecting national energy networks and diversifying supplies since the first such crisis three years ago.

“A similar situation occurred in 2006 and we Europeans now feel guilty about not having done what we said we would do,” said an EU energy official, who declined to be identified because of the sensitivity of his position.

Unlike 2006, when the Europeans broadly sided with Ukraine’s pro-Western, democratic government, the EU has remained strictly neutral this time in what it regards as mostly a commercial dispute over gas pricing and unpaid bills.

Both sides broke undertakings to Brussels on continuity of supply. The lack of transparency on contracts, the role of murky intermediaries and coalition feuding in Kiev all made it harder to sympathise with Ukraine this time, the EU official said.

“The Russians were having a good gas war until they overreacted by cutting supplies to the EU. As in the war with Georgia last year, they could not resist the urge to teach former Soviet republics a lesson,” he said.

Russian giant Gazprom’s demand for Ukraine to pay market prices is not unreasonable, but television images of Prime Minister Vladimir Putin ordering the company to turn off the taps to Europe belies talk of a purely commercial issue.

Several EU states have increased gas stocks since 2006 and avoided major disruption. But Bulgaria, the poorest EU newcomer, and western Balkans states Croatia and Bosnia were caught with no stocks at all. Supplies to 18 countries have been affected.

That prompted the EU to intervene. Czech Prime Minister Mirek Topolanek, the EU presidency holder, persuaded Moscow and Kiev to sign a deal allowing EU monitors to check the transit of gas across Ukraine to get supplies to Europe flowing again.


Progress on integrating the European gas market by linking up national pipeline systems has been very slow, partly due to mutual mistrust among EU nations, as well as divergent business interests and political differences on relations with Moscow.

Member states still do not share information with each other about the price their energy companies pay Gazprom for gas. The executive European Commission and the EU Council secretariat have been struggling to collate such data since 2006.

“We preach transparency but we do not practice it among ourselves,” the EU energy official said.
Poland has led a chorus of new members from central and eastern Europe calling for energy “solidarity” within the EU to reduce the former Soviet satellites’ dependency on Moscow, which provides a quarter of the EU’s gas.

But Germany, Europe’s biggest gas consumer, opposes any emergency EU pooling arrangement for gas stocks, arguing that this is a commercial matter for utility companies.

Berlin is keen to manage its energy relationship with Russia without the involvement of Brussels. It resisted any EU involvement in the Ukraine dispute until the leaders of Bulgaria and Croatia appealed personally to Chancellor Angela Merkel.

EU officials say the crisis should spur European leaders at a March summit to put political momentum and public money behind plans to build cross-border energy interconnectors in Europe.

They may also agree on minimum requirements for gas storage as the EU has for national oil stocks.
And they will likely give higher priority to diversifying gas suppliers, supply routes and delivery mechanisms in particular to develop liquefied natural gas (LNG) facilities.

Among suppliers, the EU is eyeing Qatar and Nigeria for LNG as well as Algeria, Norway, Azerbaijan, Iraq and Central Asian countries for piped gas.

Russia is using the crisis to underline the cost for its NordStream and South Stream projects to carry Russian gas directly to European consumers via pipelines under the Baltic and Black seas, bypassing Ukraine, Belarus and Poland.

The dispute will also add political weight to the Nabucco project, backed by both the EU and the United States, to pipe Caspian and Middle East gas to central Europe via Turkey, but there are doubts about finding enough gas to fill the pipeline.

None of these projects offers an early solution, given the long lead times and high cost. EU officials say they are not an “either/or”. There will be enough demand and enough gas to justify all three extra pipelines, they say.

In the shorter term, the capacity of existing pipelines can be expanded. But the main quick gains for European gas security would come from linking national networks into a single market and improving energy efficiency, especially in central Europe.

For previous columns by Paul Taylor, click here.


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Europe is getting a taste of Ukraine, Belarus, and Poland, all three unreliable political entities too bent on getting revenge against Russia –as if Russians didn’t suffer under Communism, or all oppression was the work of Russians. The United States? Too confused to have a coherent foreign policy –therefore, it is kind of understandable our nonsensical approach to this crisis.

Posted by Ivan VanCrane | Report as abusive

It has nothing to do with EU or Russia or Ukraine. It has to do with the world )))

Russia was cut off of their gas-oil-free-money to pump into economy and increase its world influence. Now Russian politicians are trying to find scapegoats for its silly economical and world policy. The closest and easiest target – Ukraine.

EU acts as boneless corpus – as always. Russians top-managers need just EU money and EU market – the other doesn’t matter.

Sad but Putin’s team will not retreat because there’s nowhere to retreat. EU and Ukraine are at knees. What will be next – 3d world war?!

PS. Ivan VanCrane, sorry for your post. It’s influence of intoxication and brainwashing.

Posted by eumeu | Report as abusive

Resource war. Western powers have the clamp on Russia and they are going to squeeze the heck out of them I’m afraid.

Posted by jason | Report as abusive

Thanks for a sensible article.

I am always touched to see people denying other countries the right to have their own economical and political interests. I’m afraid the ‘Putin’s team’ will not retreat. ;) It’s not because ‘there’s nowhere to retreat’ – it’s just BUA, what’s wrong with it? Sorry for the EU not to have its own gas and oil. It would be quite funny to expect the countries that sell it do so at they own loss, wouldn’t it?

What about Ukraine, compare their economical and political situation to that of Russia. Yeah, Ukraine is economically and politically bankrupt – but so, so scrupulous in regard to their gas contracts. ‘I want to believe’ (C)David Duchovny.

Eumeu, the US is not the world’s ‘governator’ and it is also not perfect, to say the least. I mean, when talking about money injection and world dominance please think about your country. You’ve got much to cure.

Posted by Nikita | Report as abusive

Please, Ivan VanCrane read history about Russia, we all should learn from history. Can anybody give me examples form history when Russia was democratic and was a good citizen and world player? There is no such time. Russia always tried to impose its powers on neighbours; Poland, Ukraine, Belarus. Germany is simply again playing with Russia their own game behind everybody’s back and cheating on Europe. Does anybody remember that Hitler made secretive treaty with Stalin to invade Poland from both sides, East and West. Few years later Stalin was also invaded by Hitler,,,. Currently one of former highly positioned German politician is employed by Russian companies that want to build pipelines around Poland and Ukraine, allowing for easier cut-offs to these countries. Is this a european solidarity? Lessons from history are that small european countries especially ones that have their boarders with Russia must not trust Russia and Germany.

Posted by Michael | Report as abusive

“… but television images of Prime Minister Vladimir Putin ordering the company to turn off the taps to Europe…”

Yeah, sure, the incompetence (or is it misinterpretation on purpose?) of the medias are purely Putin’s fault. This is evident; Putin is evil after all. Of course I do not sympathize Putin, not at all, but let’s face it: the gas stopped flowing to EU, and THEN he ordered to close the tap. How can you refute this fact?

Posted by ZYV | Report as abusive

Why condem Russia for protecting their own interests when UK & USA have been doing it for hundreds of years. Market rates is what Russia demand, same as USA & UK. for their resources. I don’t see the British giving cheap North Sea Oil to anyone. We must respect Russia’s RIGHT to get a fair price or withhold supply. Russia have been condemed and harshly treated for the last 60 years, why should they act so frendly towards those who have vilifed them.
How would the USA & UK react if Russia or Iran tried to interfer with their relations with Canada say.
This is the same problem with the way we allow USA & UK to treat Iran. Why must Iranian resources belong to USA & UK. They have interfered in other countries business for 200 years to only their advantage. Times are a changing, for the better we all hope. Lets work together, its a lot easier, but then thats not what USA & UK want because they lose their influence. And who controls their foreign policy.! Wake up and smell the roses.

Posted by Gary Watkin | Report as abusive

This gas dispute is 100% political issue and has nothing to do with commercial dispute. Let’s face it new Russia with Putin wants to have power and control. If it is strictly a commercial dispute why low difference in price ($15 per one thousand cubic meters) between Russian and Ukrainian can have these dramatic consequences for EU?
The original price for gas was:
Russian asked $250 per one thousand cubic meter;
Ukrainian offered $235 per one thousand cubic meter;
I believe that it is a political issue.

Posted by IVK | Report as abusive

the root of the evil is that Ukraine wants gas for $205 while it coasts $400. So it blackmails both Russia and EU.
mining gas is a hard work – and we want a fair, market price for it. why should we feed our Ukrainiane “friends”, who never stops fling mud at us!
free Ukraine – free prices…

Posted by Ildous, Kazan, Russia | Report as abusive

Michael- I think you don’t know about Russian history and current situation! I you look to history you can see, that every country try to protect own interests!
Now about this situation. Did you where problem start? I tell you. Russian use Ukraint to transit their gas. But also Ukraine buy gas from Russia for own purpose. At the end of 2008, Ukraine must pay debt (2 billion dollar). But Ukraine has no money. So Russian close gas transfer to Ukraine until they pay money. After that Ukraine start stealing gas from EU trunk pipeline.
That’s it.

Posted by Ordos | Report as abusive

I fear any government monopoly. I don’t understand how anyone can believe power does anything but corrupt. Of course the time for Russia is now, not next summer, or last. How Europe could have allowed one player to supply most its needs is something we in the US have yet to learn.

Posted by C Wayne Emerson | Report as abusive

Funny how we will be so sorry we give in to the anti-nuclear lobby. How relatively happy France can sit back with a near 80% nuclear energy supply profile. The World Bank estimates that 150 billion cubic metres of natural gas is flared annually… most of it from Nigeria. This amounts to about 390 million tons CO2 per year. LPG from Nigeria (by-product from LNG) should therefore be dirt cheap….anybody need some? Where one should be sitting up and paying attention though is Gazprom’s intense interest in African gas when they have so much of their own…. especially the influence they are gaining in Nigeria.

Posted by Just Thinking | Report as abusive

“Freedom of press is limited to those who own one”.
Seems like people in EU, in Russia, in Ukraine and in the world do not have foggiest idea of what is going on and gas it is not the worse.

Ukraine is the largest consumer of Russian gas (appr. 20% of Russian export). Surely consumption will decrease significantly in 2009, also in EU. That means that Russia receives less money which are already spent.

Another point Putin said that Ukrainian gas piping infrastructure is metalscap. Then why Gasprom is bleeding like hell in order to get control of it?!

Pumping gas it is not nanotechnology. Prices for gas also bound to prices for oil. So 400-450 USD is not fair price, it is fair when we see USD devaluation 10 times )))

What EU needs at the moment – Algerian gas, Iranian gas through Turkey, Russian gas through Ukraine/ Belorus. That’s more than enough, without mentioning Norwegian gas.

The biggest mistake of EU will be when it clings to Russian initiatives to build new pipelines.

Posted by eumeu | Report as abusive

Guys wake -up …..this is not a problem between Russia and EU …As we all know Ukraine were always politically close to USA within last years. USA is in crisis DOLLAR loosing on the value….In europe of course apart from UK it is still not so bad .. This is the best way how to disorganize Europe .

Mark, Devizes, UK

Posted by Mark | Report as abusive

This just strengthens the cause to invest and use renewable fuel sources. These contries all have many issues in a very complex web of issues. Russia’s new financial strength allows for muscle flexing. Yes both Germany and Russia are not good neighbors so a level playing ground is best for all. Germany has taken drastic steps toward energy to free itself. Other EU counties need to follow there example to keep the playing field level and keep excess money away from Russia (we will then will see a friendlier Russia)

Posted by Ed Derengowski | Report as abusive

dear Mark Devizes

That’s exactly what russian officials assumed today )))

With that problems in real sector in EU, USA and world, and financial collapse in the world, I think that question of gas supply from CIS to EU is out of USA attention. They have many other critical things to think over e.g. how to devaluation USD )))

Seems like each state of EU is on their own. This is what Russia needs.

Posted by eumeu | Report as abusive

Somehow Ukraine wants it both ways. They want to be independent from Russia (including their NATO and EU membership aspirations). Yet they believe they have the right to get gas supplies at the prices subsidized by Russia. To add more weight to their claims they keep EU hostage to the pipelines crossing their territory (a good argument for being admitted to EU, isn’t it?), refusing Russian offer of just over half the spot price (I’d take an offer like that from PSE&G any day).
The result? Now the Europeans became much more supportive to the idea of building pipelines bypassing Ukraine – and, for a good measure, Poland – another country with constant anti-Russian grudges. One more gas cut-off coinciding with a cold spell – and Europeans will look at Ukraine being again a part of Russian Empire as something quite reasonable and even desirable. After all, during the times of USSR such gas cut-offs were unthinkable.

Posted by Anonymous | Report as abusive

I see the Russian propagandists are out in full force.

Posted by Dave | Report as abusive