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Alleviating the EU's rocky road: a firmer Kyiv-Moscow energy partnership ahead?

5 February 2014, 3:30 - 7 PM CET

TUSIAD Avenue des Gaulois, 13, Brussels 1040

Gazprom's "thorny" relationship with Ukraine's Naftogaz is something that European energy circles have become accustomed to in recent years. Europeans have learned to live with the specter of gas supply shutdowns during the winter dreariness — supply disruptions largely resulting due to developments over which they appear to have little leverage. While NNaftogaz'sKreportedly rising debts to Gazprom in 2013 once again threatened to spill over into another crisis earlier this winter, Moscow and Kyiv pulled a "rabbit out of the hat" when they announced a ground-breaking agreement on December 17. Instead of applying sanctions and shutting down the gas supply for payments arrears, Moscow mandated Gazprom to award Naftogaz with a 30% discount for subsequent gas deliveries. This move will potentially enable Kyiv to save billions, steadying up Ukraine's much-maligned state coffers.

Although the December agreements between the Russia and Ukraine appear to have alleviated the risk of supply disruptions to EU consumers this winter, Europeans are all too familiar with the old adage: "beware of Greeks bearing gifts". It is all too easy to speculate that December's agreements were merely a tit-for-tat "back-scratcher" from the Russian president to his Ukrainian counterpart for the latter's swerve around Brussels at the November Vilnius EU Eastern Partnership Summit. That may all be well and good. But in reality, we really have very little insight into what Kyiv actually offered Moscow in return for a reported price drop from $400 down to $268 per 1000 cubic meters of gas.

In order to help us come to grips with these issues, Konstantin Simonov visited us from Moscow at the Brussels Energy Club on February 5 and provided us with some clues on the following as well as other salient questions: Will Ukraine "sell its soul" (or more precisely, its gas pipeline network) to Russia along the lines of the Belarus model and has a decision already been made to do so? How will the Maidan in Kyiv react? Will Russian control of Ukraine's pipelines turn out beneficial for Europe in the longer run, putting an end to the EU's rocky road with gas supply disruptions as happened from 2006-2009? And what will this mean for Gazprom's mega-projects, in particular, South Stream, which may become redundant if Naftogaz takes the Beltransgaz route? Or has Kyiv just bought a little breathing space and intends to continue with supply diversification plans, shale gas options, etc.?


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Director and Founder of the Russian National Energy Security Foundation, Moscow




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