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Gazprom Turning Off The Natural Gas Taps

Gazprom, the energy group controlled by the Russian state, has been embroiled in disputes over both contracts and supplies this summer.

The world’s largest extractor of natural gas, Gazprom has frequently worked to advance Russia’s strategic interests, as well as seek profits.

In early July it scrapped the contract for the construction of the first of four pipelines planned as part of the South Stream project, deciding to reroute the pipeline, which would have traversed the Black Sea and Bulgaria, through Turkey instead and to restyle the project Turkstream.  

The Black Sea route became unfeasible when the European Union insisted that third parties be allowed access to the pipeline.

Turkstream will enable Russia to export gas to Europe without going through Ukraine, where pro-Russian separatists continue their struggle against the government.  But its ability to deliver large volumes of gas to the Turkey-Greece border has raised concerns that it will dominate supply to the southeast European market.

Meanwhile, Gazprom has announced that it will no longer deliver supplies to Ukraine without receiving pre-payment.

Before Russia’s annexation of Crimea, where Ukraine-owned naval bases were leased to Russia, Ukraine enjoyed a discount on the price it paid for gas.  Talks involving Russia, Ukraine and the EU to negotiate a new contract have broken down.  

Ukraine had already started to take major steps to reduce imports of Russian gas this year.  There has been a huge surge in ‘reverse gas flows’ – gas from, rather than to, Europe.  Western energy companies have more gas to spare than previously because less liquefied natural gas (LNG) is exported to the USA, which is benefitting from a shale gas boom.

However, Ukraine’s push to tap into its own extensive reserves of shale gas, which would help it reduce its reliance on Russian gas imports, was dealt a blow when US energy company Chevron, an American multinational energy corporation, pulled out of a planned exploration project in the west of the country at the end of last year.  According to Ukrainian media Chevron was put off by the government’s hike in energy tax.  This followed in the wake of another company, Royal Dutch Shell’s decision to suspend exploration in eastern Ukraine due to the violent actions of separatists.

Last month saw a further dispute but this time it was Gazprom itself that was accused of not paying up.  Turkmenistan complained that the energy giant had not paid for any Turkmen natural gas so far in 2015.  According to authorities in the Central Asian country, Gazprom was unable to stick to its purchase-and-sale contracts because of financial difficulties caused, in part, by the economic sanctions imposed on Russia.

Turkmenistan is home to the fourth-largest reserves of natural gas in the world.  A fall in gas exports to Russia has now left it almost completely dependent on exporting to China.

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