Nord Stream 2 is not yet operational, but the Kremlin’s tightening grip on energy supply is already being felt across Europe. The price of gas futures continues to hit record highs and has risen over 600% in twelve months.
What we are currently seeing in Europe is a repeat of the oil shocks America experienced in the 1970s. The commodity is different, the safeguards are stronger, but the underlying dynamics are the same. It was not the lack of tankers that drove up crude prices and triggered an economic recession in the United States nearly 50 years ago, but the politically motivated decisions of major oil producers to cut off supplies.
As Ukraine’s gas transport operator and reliable partner for Europe, GTSOU offered transit capacities at every auction, but Russia repeatedly failed to reserve them. September 15, Gazprom announcement that its gas production has increased by 19% this year, but that Europe has not seen any increase in its supplies.
To be clear, there is no shortage of transit capacities. While the Kremlin champions Nord Stream 2 as a solution to Europe’s energy problems, around twice as much gas can be shipped from Russia to the EU via Ukraine. However, Ukraine’s network is empty while Europe does not have enough gas.
In 2019, Ukraine signed a five year contract with Gazprom to transport pre-approved volumes of gas, with additional capacities offered at monthly auctions. These auctions have recently proven to be a particularly effective signaling tool for Russia. Every time Ukraine’s offer of additional transit capacity is rejected, gas prices hit new records.
Indeed, Gazprom says it will not ship gas to Europe via Ukraine. It then raises the stakes by exhaustion off-season storage.
Anyone still wondering about the origins of the current gas crisis in Europe should consider the Kremlin recent statement confirming that “the commissioning of Nord Stream 2 will balance the price parameters of natural gas in Europe”. If this is not an effort to blackmail Europe, what is it?
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German-American declaration summer 2021 made it clear that the transatlantic community will not allow Russia to arm the energy supply against Ukraine in particular or Europe as a whole. In an age of hybrid threats, it is important to consider a range of possibilities beyond dramatic shutdowns of gas valves.
First of all, there should be no exemptions from the third energy package for Nord Stream 2. Any effort to reverse the certification process will be a clear sign of the militarization of energy.
Europe’s strength comes from the rule of law. The EU will be better protected if gas market regulations are fully applied to all transit routes. EU rules apply to Ukraine, which makes Ukraine’s transit corridor more reliable. The third energy package is Europe’s first line of defense against price manipulation and other abuses. Now is the time to use it.
Second, everyone agrees that transit through Ukraine must continue. But now that Turk Stream is online, a significant portion of the gas stream has already been hijacked. If another alternative route is available, Gazprom will be free to militarize supply volatility against Ukraine.
By shipping minimum volumes one day and maximum volumes the next day, Russia can make it difficult, if not impossible, for GTSOU to operate our infrastructure and meet our obligations at Ukraine’s western border. The existing shipping or payment agreement will become a significant risk. For Ukraine’s sake and in the interests of regional stability, the transatlantic community must demand ship and pay guarantees.
The reservation of transport capacity across Europe which then remains unused constitutes an additional additional threat. The European gas market works well when it is motivated by economic interests. No rational trader would be interested in reserving transit capacity just to keep pipelines empty. But if a market player pursues geopolitical goals, it is possible to create bottlenecks, limit market access, and isolate a country from sources of supply.
We also need to be careful with mysterious accidents that we know have happened in the past, such as the Explosion of a Turkmen pipeline in 2009 and 2006 explosion in georgia. In the current context, such an event would have a dramatic impact on energy prices and could trigger calls for âemergency measuresâ. For example, this could fuel demands for rapid certification of Nord Stream 2 or other exemptions that would benefit Gazprom and weaken European energy security.
The militarization of Nord Stream 2 is no longer a hypothetical scenario; it is an ongoing process that began the day the pipe laying business began. The situation is now gradually worsening, but no one can identify a single dramatic event that should trigger decisive countermeasures.
Majority of EU Member States reject Nord Stream 2. A group of EU lawmakers recently called on the European Commission to investigate Gazprom for its role in the current surge in gas prices. These factors, however, are not enough to stop Moscow’s lobbying campaign to cross the finish line to the pipeline project. A more robust response is urgently needed.
Allowing the completion of Nord Stream 2 has always been a terrible idea. To do so under pressure from the Kremlin would set a dangerous precedent far beyond the realm of energy that Germany and Europe will inevitably come to regret.
Sergiy Makogon is CEO of Ukrainian transmission system operator GTSOU.
Tue Sep 14, 2021
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The opinions expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff or its supporters.
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