Monday, August 10, 2009

Ukraine Stockpiles Gas for Possible Gas War

Russia Turkey Sign South Stream Deal

by Roman Kupchinsky

Ukraine is preparing for a new “gas war” with Russia according to the Russian newspaper Nezavisimaya Gazeta. The new conflict, according to this prediction is expected to begin in December. As proof, the Russian newspaper reported on August 7 that Naftohaz Ukrayiny, the state-owned gas and oil company stated that it had already stored 22.7 billion cubic meters (bcm) of gas in its underground storage facilities – the total capacity of which is 32 bcm.

Earlier, Ukrainian Prime Minister Yulia Tymoshenko said that by the end of 2009 the country would have 27 bcm squirreled away – enough to ensure sufficient supplies for the fall-winter heating season. Ukraine's ability to reach this level is suspect and if Naftohaz is unable to meet the Prime Minister’s goal, Eastern and South Central Europe, dependent upon Russian gas transiting Ukraine, might once again face shortages as they did in January 2009.

Thus far Kyiv has been meticulous in paying Russia’s Gazprom for gas deliveries in 2009. On August 5, Naftohaz paid its bill of $605 million for July. Gazprom, which has been claiming every month that Ukraine would be unable to meet its payment deadline, once again refused to comment.

The money however was made available to Naftohaz through a new emission by the Ukrainian Central Bank. Whether the Ukrainian government is willing to risk such a maneuver again is doubtful. It appears to be relying on the European Commission’s recently approved loan of $1.7 billion by European banks and the World Bank to Ukraine which is to be finalized only in January 2010.

U.S. Special Envoy for energy, Richard Morningstar told Trend Capital that the United States does not view the South Stream pipeline project as a competitor to the Nabucco pipeline.

“Nabucco and the South Stream shouldn’t be viewed as competitors. The U.S. policy is to diversify the energy security of Europe by different resources,” Morningstar said.

The comments came after Russian Prime Minister Vladimir Putin’s visit to Turkey in early August where he convinced his Turkish counterpart, Recep Tayyip Erdogan, to allow Russia to begin initial work on South Stream.

“It’s clear now that the South Stream pipeline is a reality, and it [is] particularly important in the context of providing energy security for the whole of Europe, and in developing complex relations between Russia and Turkey. Our talks have shown that with Turkey’s leadership we can come to decisions that open the door to massive new energy projects,” Putin said.

It appears that Turkey did not have much choice but to sign the South Stream agreement. It not only receives two-thirds of its gas from Russia, but by supporting both the Russian project and Nabucco, it helps Turkey become a vital gas hub for Europe and improves its bargaining position in its bid for EU membership.

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