The transit of gas through Ukraine is too sensitive for Russia and Europe, at least ahead of the launch of Nord Stream 2. Until it is completed, the United States will continue to have the opportunity to discredit Russian gas supplies to Europe in order to promote its own LNG on the market.
On the eve of the first round of the presidential elections in Ukraine, the topic of Europe’s Russian gas supply once again came to the fore. Although the campaign itself has resembled a TV comedy show to outside observers, the issues requiring resolution are no laughing matter; they include the immediate fate of the energy security of the European Union.
As we know, the current transit contract between Russia’s Gazprom and the Ukrainian gas pipeline company Naftogaz will expire on 1 January 2020, at 10 a.m. This fuse could be re-lit and lead to a new gas transit “explosion”, disrupting Russian gas supplies to Europe. If a decade ago the European countries were being compelled to pursue large-scale state support for renewable energy, despite the inevitable accompanying hike in electricity prices for end users and negative consequences for the competitiveness of the EU economy, the motives of the current situation’s culprits are far more obvious.
This last trick, in general, looks like a multi-player game. Denmark and Poland have suddenly settled a forty-year territorial dispute that had prevented them from demarcating their exclusive economic zones at sea south of Bornholm, an island in Denmark. When Nord Stream 1 was constructed, the absence of a demarcation line forced the route of the pipeline to go south of the island, placing it within Danish territorial waters. However, when the Nord Stream 2 application was submitted for a similar route, Copenhagen changed the legislation ex post facto, transferring the responsibility for issuing final approval for projects in the nation’s territorial waters from the energy regulator to the country’s foreign ministry, which has remained silent on the matter for more than a year, issuing neither a yes nor a no. As a result, the project operator has proposed an alternative route, in the exclusive economic zone (EEZ) of Denmark north of Bornholm. Here the Foreign Ministry is powerless and the Danish Energy Agency (DEA) is responsible for deciding, in accordance with international conventions. Just before voting in Ukraine, the DEA asked the Nord Stream 2 consortium to explore another alternative route through the newly-acquired EEZ after the miraculous resolution of Denmark’s nautical demarcation dispute with the Poles. For the project’s opponents, this is just another way to play for time, relatively legally. It may take several months to carry out all the relevant procedures. Amusingly enough, even before an official statement was made by the agency, Naftogaz tweeted that Denmark had refused to issue a permit for the leg of Nord Stream 2. During an election, anything goes.
All of these delays are being implemented with one goal in mind: to create uncertainty about the construction of the gas pipeline, which threatens to deprive Ukraine of its gas transit monopoly status once and for all. Let’s recall that Russia and Germany have already agreed at the highest level that transit through Ukraine will continue, but only if the deal is economically competitive and comes with security guarantees. Kiev, obviously, would like to dictate its own terms. However, this isn’t in the interest of either the supplier or the consumers. The very preservation of gas transit and the revenue it brings represents a great windfall for the Ukrainian economy, even if Ukraine has done everything within its power to cut economic ties with Russia for the past five years, to its own detriment.
But the fact of the matter is that the transit of gas through Ukraine is too sensitive for Russia and Europe, at least ahead of the launch of Nord Stream 2.
This would be easy to arrange – Washington would simply need to disrupt the negotiations and blame Russia. This tactic was tested in 2008.
The shortcomings of American LNG are widely known in Europe – it is too expensive and cannot honestly compete with Russian gas, especially amid fairly low prices. This applies both to supplies provided through Nord Stream 2 and through Ukraine. Therefore, from the point of view of the United States, the normal transit of Russian gas through the Ukrainian pipeline is detrimental to their interests in the European gas market, just like the supply via the Trans-Baltic pipeline. A disruption in gas transit before the entry into force of Nord Stream 2 would be a gift of fate, killing two birds with one stone: undermining the reputation of a competitor, and driving up prices on the market.
