A politically unstable Ukraine is not only bad for European gas supplies, but it also makes life harder for Vladimir Putin as well.
Russia is pushing ahead with strategies to make Ukraine less crucial in its bid to dominate Europe’s natural gas market.
Russia’s state-owned gas company Gazprom said on Tuesday that it was moving forward with building the South Stream natural gas pipeline which would get fuel to central and southern Europe without passing through Ukraine.
“South Stream is confidently moving ahead,” Gazprom said in a statement. “Agreements on the laying of the first leg of the pipeline will be signed before the end of March, as well as agreements on the supplies of pipelines for the second leg.”
Currently, about two-thirds of Russia’s gas exports to Europe travel through Ukraine, making the country a key area for Putin’s government to control. The sharp political divide in the country between the pro-European Union and pro-Russian segments of the country sparked worries that gas supplies could be imperiled.
Ukraine owes Gazprom about $1.5 billion in unpaid fuel bills, number made lower by Russian gas subsidies to the country. The Obama administration recently gave Ukraine $1 billion in energy aid (which will pay a substantial portion of the bill), but Europeans are worried that Putin could shut off gas supplies to the country, which could potentially affect the rest of the continent.
Ukraine’s political crisis has showed Europe just how reliant they are on costly Russian natural gas and sparked calls for the U.S. to quickly approve liquefied natural gas export terminals to the EU.
Reuters reports that EU negotiators are pressing the U.S. to include the allowance of natural gas exports to Europe in the pending free trade deal between the two powers. The original treaty did not include energy issues, but the EU is pressing D.C. to consider gas exports in the wake of Russia’s energy dominance.
Adding to EU worries are the prospects of Crimea voting to leave Ukraine and become Russian, taking its valuable offshore oil and natural gas deposits with it and delivering them to Putin’s Gazprom.
Before Ukraine’s government was overthrown, oil and gas companies like Exxon Mobil and Royal Dutch Shell were on the verge of signing a deal with former President Viktor Yanukovych to develop the offshore deposits.
Oil companies were willing to spend $735 million to drill two wells off the Crimean coast but now the projects are in a “legal limbo” reports Bloomberg. If Crimeans vote on March 16 to secede from Ukraine and join Russia, Kiev “may soon no longer have jurisdiction over the region.” Those offshore oil and gas deposits may become the property of Russia and give Gazprom a new supply source.
Julian Lee, an analyst at the Center for the UK’s Global Energy Studies told Bloomberg that “the most interesting exploration areas are all effectively [under] Crimean waters” and that losing these waters “would be a significant loss for Ukraine.”
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