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Ukraine tells EU to play rough with Russia on gas prices

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EDITOR'S CHOICE

Ukraine is telling the EU to give the Russians a taste of their own strong-arm tactics when it comes to gas prices.

EU countries have been quick to condemn Russia over Ukrainian reports of war crimes, but they’re still reluctant to introduce sanctions that would cut their gas purchases from Moscow’s export monopoly Gazprom for fear of undermining their economies. So, Kyiv is laying out a highly unorthodox gameplan for the Europeans — one that would require legalistic Brussels bureaucrats to be as cavalier toward contracts as Russia is toward international law.

Officials from Kyiv say the European Commission should take control of all EU gas purchases by designating one authority to negotiate a new price for Russian gas exports — one significantly lower than current spot rates. This new price would make it worthwhile for Gazprom to keep the gas flowing but drastically reduce the profits that fund its war in Ukraine. The price would also be pitched at a level to allow Ukraine to keep on earning transit fees — worth some $2 billion in 2020.

“There is a lot of opportunity for the EU to replace Russian gas, but it’s really difficult to replace it in a short period of time without huge effects on the economy because its total share is 40 percent,” Ukraine’s Deputy Energy Minister Yaroslav Demchenkov told POLITICO.

The scheme would require the EU to designate a single buyer for Russian gas, instead of the current system of private companies negotiating with Gazprom.

“This designated entity would be buying gas on specific conditions set by authorities — by the Commission, but it’s negotiable — and would release the gas onto an exchange in Europe so that all other traders have access to these volumes on equal terms,” he said.

If Gazprom didn’t like the idea of being deprived of its usual ability to play divide-and-rule among multiple EU buyers, Demchenkov said it would not have any choice but to face the new reality.

“On the key question, will Gazprom agree to this? Here we argue that Gazprom has no other options than to send gas to the EU,” Demchenkov said. “Gazprom needs to export between 140 and 190 [billion cubic meters] of gas a year, and 80 percent plus of this can only go to Europe by pipeline.”

Those volumes can’t be rerouted to China via pipeline, while Russia’s liquefaction capacity is still too small to export that amount via ship to Asian markets, he added.

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Ara D. Kassabian CPA, based in Glendale, California, provides a full range of tax preparation, accounting and bookkeeping services, either in your facility or at our location. Making it quick and easy to file your taxes.

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