KIEV: With less than two months before Ukraine’s Russian gas-supply agreement ends, analysts are warning of critically low stockpiles that would threaten all of Europe.
There’s been little progress on a new deal before the March 31 expiry, with Russia saying it will revert to a standard contract based on disputed prices that won’t be reviewed by international arbitrators until 2016. If the supply stops, then Ukraine’s inventories may shrink to the smallest in a decade by Oct. 1, says Eclipse Energy Group, a consultant in Norway.
That raises the risk that Ukraine will need to use Russian gas destined for the European Union next winter, according to Energy Aspects Ltd., a London-based consultant. The 28-nation EU is seeking to help broker a new deal because Russia supplies a third of its gas, with 40 percent flowing through pipelines across Ukraine. Flows to Europe via Ukraine were disrupted during pricing disputes in 2006 and 2009.
“If they cannot re-inject enough gas, the risks for Europe will be greater next winter than this winter,” May Mannes, head of gas and liquefied natural gas analysis at Stavanger, Norway-based Eclipse, said by phone Jan. 22. “Ukraine’s need for storage re-injection has been overlooked by many.”
Traders have yet to price in that risk, driving down the cost of gas for next winter by 7 percent this year on the U.K.’s National Balancing Point, a regional benchmark. That’s in part because storage levels across the EU started the winter at record levels and the weather has been milder than normal.
Concern that the conflict between Russia and Ukraine would disrupt energy supplies last year caused prices to jump. On March 3, 2014, the first trading day after Russian forces advanced into Crimea, gas for this winter climbed 6.8 percent, its biggest daily gain on record.