Ukraine and Moldova set to disarm Vladimir Putin’s energy weapon

Russia might have hoped that the heating season starting October 1 would kick off with a bang to inflict more pain on Europe’s edgy energy markets. However, so far the Kremlin has had little to cheer about.

News in late September that Russia’s Nord Stream gas pipelines had been sabotaged helped push up gas prices in Europe, but not for long. Markets adjusted almost immediately and remain in a downtrend. Even Gazprom’s veiled threats to stop gas transit through Ukraine and its decision to cut deliveries to Moldova did not cause panic.

Ukraine reacted calmly, pushing back on calls by Gazprom to drop arbitration proceedings and insisting that the Russian company should instead face the consequences of paying less than it is contractually obligated to for transmission capacity. reserved. Meanwhile, Moldova was even selling gas to Ukraine to raise much-needed funds.

It is of course premature to rejoice. Russia could still try to harm both countries as the winter season approaches by completely cutting off supplies to Moldova and following through on its threats to suspend gas transit through Ukraine. This transit freeze could happen as early as next month. Nevertheless, despite a range of legitimate concerns and the enormous challenges caused by the ongoing Russian invasion, Ukraine and Moldova are arguably now better placed to weather the winter heating season than in previous years.

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For Ukraine, efforts to protect the country from Vladimir Putin’s energy weapon began even before the Russian invasion began in late February 2022.

Perhaps most importantly, Ukraine upgraded its gas transmission system for a historic flow reversal. For more than four decades, the country has been delivering Russian gas to Europe through a powerful transmission system that previously served for east-west flows. However, when Russia threatened to divert transit to its new Nord Stream gas pipelines across the Baltic Sea, Ukraine understood that its own transit system would have to be prepared for reverse flows to ensure physical access to supplies. neighboring European countries.

Ukraine has not bought gas directly from Russia since 2015, but the alternative supplies it has since secured from Europe have depended on Russian transit from east to west. Thanks to upgrades put in place by the gas network operator GTSOU, Ukraine can now import almost 20 billion cubic meters per year from Europe, two-thirds of its pre-war consumption, which whether or not the gas passes through Ukraine.

The biggest problem since the start of the war has not been the lack of access to import capacity but obtaining finance. So far, the European Bank for Reconstruction and Development (EBRD) and Western partners such as Canada have offered financial support of nearly one billion euros. This money may not be enough to purchase large volumes as gas prices have reached record highs, but Ukraine’s import needs are currently limited as demand has almost halved due to destruction by Ukraine’s infrastructure and a sharp drop in economic activity during wartime. As a result, most domestic consumption is now covered by locally produced volumes.

Critically and unexpectedly, Ukraine also synchronized its electricity transmission system with that of Europe within weeks of the start of the Russian invasion. Since the start of trade, Ukraine has been exporting its surplus electricity production to neighboring Moldova, Romania, Hungary and Slovakia. These flows could be reversed to facilitate imports, particularly if Russia destroys or captures more production facilities this winter and creates a domestic supply shortfall.

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With its historical dependence on Russian imports, Moldova remains one of the most vulnerable countries in Europe to supply cuts, having limited access to alternative resources and lacking its own storage facilities. . That said, the Moldovan authorities have made some progress in recent months to reduce the country’s energy insecurity.

Moldova has transferred 50 million cubic meters of gas to Romanian and Ukrainian storages, which it could withdraw later this winter. The country has also secured a 300 million euro loan from the EBRD that could help secure enough gas for a month.

To be able to cope with a total reduction of Russian gas, Moldova would have to further drastically reduce the demand for electricity and gas and ensure maximum efficiency in the operation of the entire energy system. Some critical steps have been taken so far in this direction. The country has created a public electricity and gas wholesaler, Energocom, which is now managed and advised by Western experts with extensive commercial experience and whose ultimate task is to guarantee the country’s security of supply.

Meanwhile, after nearly three years of legal delays, Moldova launched virtual reverse flows at its interconnection points with Ukraine and Romania in late September. This means that instead of physically moving gas back and forth, deliveries can be cleared at borders. A total of 4 million m3/day can also be physically exported from Ukraine to Moldova, but virtual flows are useful to simplify operations and, above all, reduce transport costs.

For now, the swaps are based on Moldova importing Russian gas or volumes stored in Ukraine and shipped along the Trans-Balkan corridor. In the future, it may be possible to introduce more sophisticated operations that would facilitate the transport of gas sourced in Greece or Turkey to Moldova and Ukraine at reduced costs.

With the Russian invasion underway and no end in sight for the war, the coming winter months could still see painful energy shortages in Ukraine and Moldova. However, one has the feeling that a turning point has been crossed. Just as the European Union reduced its dependence on Russian gas imports from 40% last year to 7% in 2022, Ukraine and Moldova are also learning to sever the ties that previously kept them captive to Russian energy supply.

Dr. Aura Sabadus is an energy journalist who writes about Eastern Europe, Turkey and Ukraine for Independent Commodity Intelligence Services (ICIS), a global market intelligence and data provider energy and petrochemicals company based in London. His opinions are his own. You can follow her on Twitter @ASabadus.

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The opinions expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the opinions of the Atlantic Council, its staff or its supporters.

The Eurasia Center mission is to strengthen transatlantic cooperation in promoting stability, democratic values ​​and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and the Central Asia to the East.

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Image: Russia has long been accused of using energy as a weapon in its war against Ukrainian independence. (REUTERS/Dado Ruvic/Illustration)