Commentators have discussed what effect the recent political events in Ukraine and the Crimea may have on the gas markets.
The Oxford Institute for Energy Studies notes in a recent paper that Russia supplies about 30% of Europe's gas and more than half of these volumes are still transported via Ukraine. It is understood from a speech made by Russia's prime minister Dmitry Medvedev on 21 March 2014 that Ukraine may owe Russia some $16 billion in unpaid debt. Of this sum, the Institute notes that Ukraine's Naftogaz was in arrears to Russia's Gazprom by a sum of about $2 billion, and it is this debt which the Institute concludes is the most likely source of supply disruption (assuming a military conflict is unlikely) because such a build-up of debt has in the past led to Gazprom cutting off deliveries to Ukrainian customers and this has seen the diversion of transit gas bound for Europe to consumption in Ukraine.
If these gas deliveries are halted (as they were in January 2009) the Institute says that the impact would be less serious because the Nord Stream pipeline, which transports Russian gas to Germany under the Baltic Sea without crossing Ukraine or Belarus, has been completed, other interconnections have improved the situation in eastern Europe and the South Stream pipeline, a project backed by Gazprom, Eni of Italy, EDF of France and BASF of Germany, is also being planned. It was recently announced that South Stream had signed a contract worth about €2 billion with Saipem of Italy to build the offshore stretch of the route under the Black Sea from Russia to Bulgaria. These measures may enable the transit of Russian gas through Ukraine to be suspended completely by 2020.
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