Ukraine Cuts Dependence on Gazprom

Ignoring predictions of waning European gas demand, Russia’s Gazprom is pressing ahead with plans to build costly new pipelines to bypass Ukraine. Moscow wants to squeeze Kiev by funnelling EU-bound gas exports around what it sees as a troublesome neighbour.But the policy is inadvertently driving Ukraine to do what it should have done long ago – reduce dependence on Russian-supplied gas by diversification and energy efficiency. Annual gas imports from Russia have already plunged from 70bn cubic metres a decade ago to under 30bn bcm this year – and are set to fall further.

In sealing approval this week from holdout Bulgaria, the stage is now set for Russia and its European partners to build the $19bn South Stream pipeline across the Black Sea to south east Europe – a twin for the Nord Stream route, that pumps gas under the Baltic Sea to Germany.

Together the two pipelines will allow Gazprom to reduce EU-bound gas exports through Ukraine to a bare minimum.

Moscow hopes that Kiev — facing the prospect of losing lucrative billion-dollar transit revenues – would follow neighbouring Belarus and surrender to Gazprom control of its gas pipeline transit system.

But, instead of bringing Kiev to its knees, Russia’s pressure has forced Ukraine – Gazprom’s single largest customer — to cut down sharply on increasingly expensive imports through diversification and efficiency measures.

A decade ago, Ukraine consumed about 70bn cubic meters of gas imported from Russia, supplied on top of the near-100bcm pumped through its pipelines to the heart of Europe. But since Russia in 2006 started jacking up prices for Ukraine to levels higher than that paid by many European countries (today some $430 per 1,000 cubic meters), the country has halved imports.