Russia considering bypassing Ukraine tank storage in shipping gas to Europe; Gazprom set to avoid latest round of sanctions.

Gazprom Storage

Gazprom Storage (http://www.kyivpost.com)

As further sanctions against Russia are debated, Gazprom (the country’s giant gas export monopoly) has announced that it’s prepared to cut off all supplies to Ukrainian pipelines as early as June 3rd. Whilst Gazprom nor its senior management have been sanctioned by the United States or Europe Union over Russia’s involvement in the ongoing Ukraine/Crimea crisis, they claim they are ready to act because Ukraine owes it more than $3.5 billion for past shipments.

Whilst as part of this ongoing crisis Russia is reportedly analysing how to avoid Ukranian underground gas storage facilities in order to continue to keep shipping gas to Europe according to comments made to Russian journalists by Russian Deputy Energy Minister Anatoly Yanovsky. Large Soviet era underground gas storage facilities in western Ukraine are traditionally used to support gas shipments to Europe, while transit gas is used by industry in Ukraine’s east.

“Gazprom is making every effort to guarantee uninterrupted gas shipments to Europe and there is the possibility to inject gas in the underground storage facilities of other counties, and not at Ukraine’s reservoirs. We can use the Yamal-Europe pipeline [and] Nord Stream [pipeline] at full capacity. With consideration given to OPOL, shipments could total 15 billion cubic meters per year, which is comparable to the volume at Ukraine’s underground storage facilities,” Yanovsky claimed.

And Russian Natural Resources Minister Sergei Donskoi has made it clear there will be consequences for Western energy firms that comply with any or all sanctions. Speaking last month and reported in Eurasia Review, Donskoi warned “It’s obvious that they won’t return in the near future if they sever investment agreements with us, I mean there are consequences as well. Russia is one of the most promising countries in terms of hydrocarbons production. If some contracts are severed here, then, colleagues, you lose a serious lump of your future pie.”

EDITOR’S VIEW: The challenge for the EU is how to install sanctions on Russia without jeopardizing its own supplies of gas – of which about one-third is supplied by Russia, half arriving via Ukrainian pipelines. A gas cut-off by Russia would cause severe disruption in Europe, particularly once the Summer is over and demand increases. However, let’s not think this is a one-way street. Although a cut-off would deprive Europe of a major supply of gas, it would also eliminate a much needed source of revenue for the Kremlin, essential as the Russian economy dips. With the Ukraine crisis remains volatile, hard predictions are impossible to make, but from a business point of view, one would suspect Russian gas exports to Europe will continue.

See also: Tank World country focus: Russia

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