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25 Jan, 2009 05:47

Gas flows to Europe at last

The gas taps were fully reopened this week, bringing to an end the energy crisis that had left many thousands in Europe without heating.

The agreement on gas prices and transit fees followed weeks of bickering and finger-pointing between Russia and Ukraine.

Despite the apparent success of the deal, however, concerns remain that the scenario will be repeated at a later date.

Kiev will enjoy a 20 per cent discount for Russian gas this year while Moscow has secured a fixed transit fee. Next year, however, prices will revert to market level.

Both sides seemed happy with the agreement. Ukrainian Prime Minister Yulia Timoshenko said she was “very grateful to Vladimir Putin and his team for his readiness to provide special conditions for Ukraine in 2009.”

Both sides say the 10-year deal should prevent a repeat of this year's chaos.

However, not all agree.

“This is not really a guarantee. Because regardless of how much Ukraine wants to fulfill the terms of the deal, Naftogaz, its state energy company, is suffering financially, and how it will pay for Russian gas in the future is a very good question,” Sergey Pravosudov of the National Energy Institute said.

Gazprom's European customers are taking precautions to prevent being left out in the cold again.

Some dealt better than others – like Germany, which had stored adequate reserves to meet such a crisis.

But countries wholly dependent on Russia – like Bulgaria and Slovakia – were left without gas and seriously considered violating their EU accession terms by restarting their nuclear reactors.

There's renewed enthusiasm about alternative supply routes, such as the North Stream through the Baltic Sea, and the South and Blue Stream – through the Black Sea.

“Some in Europe are going to be hesistant in that they don't want to be reliant on Russia for gas. But in reality they don't have much choice,” said Ron Smith, Head of Research for Alfa Bank.

The Russian side certainly wants to retain its reputation as a reliable supplier. However, its ability to do that may depend on the political situation in Ukraine.

“We must keep in mind that the transit crisis is really the Ukrainian political crisis. And until the political situation is resolved, until there is stability in the governing of Ukraine – this matter will not be fully resolved,” said Dmitry Aleksandrov from Financial Bridge.

The upcoming presidential election in Ukraine could help clear the air, but few in Russia are banking on political stability there in the near future.