Loss of Ukrainian gas transit does increase the risk of military conflict.

 

Ukraine-Russia-Pipelines

 

In October 2013, I came across an anonymous blogger’s note about Russia forming a separate air assault brigade to stop shale gas development in Eastern Ukraine [1]. It was several months before the Ukrainian revolution of 2014 [2], and I dismissed the news as fake. However, after the start of combat activities in the Ukrainian provinces of Donetsk and Luhansk, the note made a lot of sense.

 

Coincidentally or not, the gas supply system of Gazprom was ready for the war in Ukraine.  For many years Rostov-on-Don and two more provinces of Southern Russia were receiving gas through Eastern Ukraine. In 2007, Gazprom commissioned a bypassing pipeline enabling “to directly supply gas to Russian consumers and to reduce transit costs via the territory of the contiguous country” [3]. Remarkably, Gazprom invested over $1 billion to save “up to $40 million of transit fees a year” [4]. The operating expenses at the new pipeline and compressor station were several times higher than the cost of Ukrainian transit [5]. Anyway, in 2014 the Kremlin would have hardly taken the risk of leaving millions of Russian voters without gas, so the construction of the bypass was very well-timed.


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There was a trace of gas in the Russia-Georgia conflict of August 2008. Some observers raised concerns that one of the Kremlin’s goals was to stop the construction of the Nabucco pipeline, the competitor of the South Stream project of Gazprom [6]. Investors’ reaction such as depicted by Reuters was welcomed by the Kremlin: – “Energy suppliers in the Caucasus and Caspian region could turn their backs on Georgia as a transit route after the country’s brief war with Russia, denting confidence in the Nabucco pipeline project” [7].

 

газпром

Surprisingly, in 2013 Gazprom Export mentioned the risk of Russia’s use of armed forces to kill the competition from the Trans Caspian Gas Pipeline.  “The construction of this pipeline would mean to spit in the face of Russia and the real risk may be that of a military conflict, in front of which Russia will not pull back,” wrote the Blue Fuel corporate magazine showing the lack of limits in protecting the South Stream project from any competition [8]. There are no evident opponents of the Kremlin among the Caspian countries, but Russia has significantly increased its Caspian Flotilla. “Since 2014, it has added more than ten new naval vessels, refitted the remaining ones with more modern weaponry, and increased the complement of Russian sailors on them” [9].

 

As a matter of fact, Gazprom has its own armed security forces.  The Russian Law “On the Deliveries of Products for Federal State Needs” says special security forces of the owner of the Unified Gas Supply System of Russia protect assets and products delivered according to the state contracts [10]. The law doesn’t specify how far the armed forces of Gazprom can go to protect its gas.

 

In the countries neighboring Russia, routes of pipelines filled with Russian gas are safer than those filled with gas of Gazprom’s competitors or territories without any transit volumes. Looking at the map of the military conflict in Eastern Ukraine one can note that artillery and small arms were engaged in the vicinity of the abandoned pipelines but never closer than 80 kilometers from the operating export pipeline [11]. Therefore, reduction of the volume of Ukrainian gas transit to zero increases the risk of a large scale invasion of Russian forces to Ukraine.

 

By Mikhail Korchemkin

East European Gas Analysis

Malvern, PA, USA

 


Sources and factchecking links

[1] https://urb-a.livejournal.com/4198121.html?thread=99520489#t99520489

[2] https://en.wikipedia.org/wiki/2014_Ukrainian_revolution

[3] http://www.gazprom.com/press/news/2007/november/article64011/

[4] https://www.advis.ru/php/print_news.php?id=6F0D6F25-B2BA-024E-B4AD-80F736B101A1

[5] https://m-korchemkin.livejournal.com/29886.html – FT did the factchecking.

[6] https://fas.org/sgp/crs/row/RL34618.pdf

[7] https://uk.reuters.com/article/caucasus-europe-oil/rpt-analysis-energy-suppliers-wary-of-georgia-nabucco-after-war-idUKL155605620080901

[8] http://www.gazpromexport.ru/files/19355.pdf

[9] https://jamestown.org/program/russias-caspian-flotilla-dominant-at-sea-gains-new-shore-landing-capability/

[10] https://rg.ru/2014/04/23/akty-dok.html

[11] https://eegas.com/images/archive/Ukraine-Russia-Pipelines.png

 

This entry was posted in Bulgaria, Europe, The Region and tagged , , , , , , by Mikhail Korchemkin.

About Mikhail Korchemkin

Dr. Mikhail Korchemkin is the founder and managing director of East European Gas Analysis, a consulting company that specializes in cost-benefit and financial analysis of natural gas projects in the former Soviet Union. His previous experience includes performing numerous feasibility studies for the USSR Gas Ministry, predecessor of Gazprom. Prior to going into full-time consulting Mikhail taught at the University of Pennsylvania. He has also had visiting scholarships at Harvard University and Erasmus University in Rotterdam. Mikhail has consulted numerous corporate and governmental clients including ABN-AMRO Bank, Amoco, BP, British Gas, Chevron, Conoco, Ernst & Young, ExxonMobil, Gas Strategies, Gasunie, Neste Oy, Osaka Gas, OTA of the U.S. Congress, Ruhrgas, Shell, Statoil , Swedegas, Total, Vattenfall and The World Bank. He has acted as expert witness in arbitration cases concerning natural gas business in Russia and Eastern Europe.
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