With the conflict in Ukraine heating up, the gas supply pipelines could be cooling down, as Gazprom issues a new threat of potential disruptions to supplies if disputes with Ukraine continue.
As the European Union and the US slap yet more sanctions on Russia and its bigwig billionaires over the crisis in Ukraine, retaliations from the Russian side can be anticipated, with the latest threat coming from Russian gas giant Gazprom, which is now saying supplies to Europe could be disrupted over the conflict.
Gazprom, Russia’s state-owned monopoly gas utility, has announced that the conflict is set to harm its business and its share price, this in the wake of disappointing lower annual profit for 2013 than had been forecast. The company’s net income dropped from 1.22 trillion rubles in 2012 to 1.14 trillion in 2013, well under forecasts. Despite overall revenue rising by 10% over last year to around 5.25 trillion rubles, provisions and impairments pushed the company’s performance lower.
Just three days ago, Gazprom made it clear that the crucial supplies of gas to the European Union, which is dependent on Russian supplies for around 30% of its consumption needs, would not be disrupted. It did note, however, that distribution via Ukraine could not be guaranteed.
Gas supplies from the West
The situation has changed since then, however, especially as Ukraine will now start receiving gas from the West via its eastern neighbor, the Slovak Republic, after the two sides signed a Memorandum of Understanding yesterday.
Slovakia and Ukraine have been wrangling about the use of the main transmission pipeline to feed Ukraine’s gas needs, the so-called large reverse option. That pipeline, however, is reserved chiefly for Russian gas supplies to Europe, and Russia and its gas monopoly are against the pipeline being used to the benefit of Ukraine.
So far, Slovakian officials and its transmission system operator Eustream have declined the pleas of Ukraine to allow the pipeline to be used, citing its contractual obligations to Gazprom as the grounds
In its financial report released today, Gazprom announced that the political and economic tensions between Russia and Ukraine “have produced renewed concerns regarding the reliability of gas supplies to Europe through Ukraine”, explaining that Gazprom’s exports to Europe via Ukraine could be disrupted if disputes between the Russian and Ukrainian parties continue.
Bell rings for round three
The European Union is already preparing a third set of sanctions, with the Ukraine crisis set to be top of the agenda at the pan-European meeting of foreign ministers set for May 12. Japan is also keeping in step, announcing visa bans for some 23 unnamed key Russian individuals right after the EU and the US declared a second round of sanctions.
As the sanctions roll out, Russia’s Foreign Ministry has hit back at the EU, saying it “should be ashamed” of itself and that it was “under Washington’s thumb”. Although the sanctions target those close to Vladimir Putin, they have, possibly tactfully, avoided those surrounding Gazprom.
By John Boyd
Courtesy of World Business Press Online