How The Mounting Tension Between Russia And Ukraine Will Affect Gas In Europe

Over the weekend, as Ukrainian forces mobilized and Russia asserted its military presence in Crimea, concerns were raised over gas supplies to European nations. Ukraine, a former Soviet state, is the key route for gas transportation from Russia to the rest of Europe, and Russia is the leading gas supplier for European nations. Amid growing concerns over the supply stability — Russia has flexed its muscles and cut off supplies in the past — Ukraine has doubled its gas imports from Russia to stock up.

Fortunately, these concerns may be short-lived for the rest of Europe. Meteorologists predict warmer-than-usual weather in the coming months, which means the already weak demand for gas will continue. And high storage levels are being maintained in some countries, including Czech, Poland, Austria, Hungary and Germany.

Russia’s Gazprom is the largest gas supplier to Europe, and about a third of that gas is exported through Ukraine. While Gazprom claims the events in Ukraine won’t have an effect on transit through the country, analysts say otherwise.

"(Russian President) Vladimir Putin's Crimean plan increases the risk of interruption of transit flows of Russian gas through Ukraine. Russian gas supplies via Ukraine can stop any day," Mikhail Korchemkin, of U.S.-based consultancy East European Gas Analysis, told Reuters. "The heating season is ending, and Ukraine would be able to live on without any imports of Russian gas for about seven months."

And if more supplies were needed by other European nations? Well, the improved gas infrastructure throughout Europe means Russia’s gas supply could be delivered through other routes, such as a pipeline that goes into Germany through Poland and Belarus, or the Nord Stream pipeline that runs to Germany through the Baltic Sea — bypassing Ukraine altogether.

Despite the low demand for supplies, Ukraine, a major buyer of Gazprom gas, is stocking up, particularly given that prices are likely to rise. Prices on future gas have already climbed for some European nations, with a 10 percent increase for U.K. and Dutch gas. Plus, a NetConnect hub contract with Germany jumped 8.1 percent.

Tobias Meyer, a purchaser and seller of gas for Gas-Union GmbH, told Bloomberg Businessweek that a military dispute will always lead to insecurity in the gas market. “That’s what prices reflect today. I didn’t expect such a price spike especially in the short-term market as the supply situation is still really good,” Meyer said. “Should the political situation ease, then prices may drop rather quickly again.”

The situation in Ukraine has prompted Chevron Corp to increase security for its employees searching for gas in Ukraine’s shale fields. While Ukraine hopes to be a shale gas exporter by 2020, those plans could be scrapped as the Russian-Ukrainian conflict continues.