Quite recently, Gazprom has been titled a gas weapon of Russia, with which Kremlin could pressure not only its nearest neighbours, as was during the gas wars with Ukraine, but entire Europe as well. However, fall in oil prices together with efforts of European gas buyers was marked by the fact that the balance of forces began changing in favour of the latter. One cannot categorically insist, but in the nearest future, it will be Kremlin’s turn to be blackmailed. The time to cut gas off gave way to the time to cease buying it.

Recent gas arrangements between Russia and Ukraine are indicative of the fact that all of the above is not idle talk but gradually emerging reality. After Kyiv ceased buying gas since April 1, Moscow agreed with a new gas price. Though Ukraine kept on insisting on prepayment gas, it was decided to decline from a formula ‘take or pay’, and the price proved to be the one Ukraine’s Energy Minister Volodymyr Demchyshyn predicted – $248 per 1,000 cubic metres.

Inverse blackmailing

Russians tried to save face as saying that the current price came from the formula $348 per 1,000 cubic meters minus discount $100 as granted by the government of Dmitry Medvedev. However, this casuistry does not deny the fact that Kyiv managed to gain a price it expected from Russia. It happened earlier than expected: some progress on this track was expected to occur only in mid-April.

New talks will be held in Berlin aimed at drafting an agreement on gas deliveries until the end of 2016 heating season. On April 1, Ukraine’s Naftogaz and Gazprom shook hands on the bargain, so the price for the second quarter was approved. It proved to be cheaper than Kyiv ought to pay for reverse deliveries from Europe.

It turned out that Ukraine is less scared not to get the Russian gas in the nearest months than for Russia to lose gas profits. While in 2011 Kyiv was the biggest client of the Russian gas giant, in 2013 it ceased to be in the first three of buyers giving place to Germany, Italy, Turkey and even Belarus. In the reviewed period, the government of Yanukovych raised gas deliveries from Europe and reduced consumption of the Russian fuel. At the height of war between Ukraine and Russia, Kyiv is buying minimum gas to be less dependent upon Russia.

The Russian gas blackmail led to the adverse effect. Both Ukraine and Russia began thinking of how to diversify deliveries. At the same time, infrastructure was developing impetuously to weaken dependence of main clients upon Gazprom at the expense of opportunity to pump gas from other European countries. A network of new gas pipelines-interconnectors and gasholders enabled Europeans to painlessly endure months-long delay in Russian gas deliveries.

Under the latest research of Cologne University, the only country to suffer from Russia’s refusal to pump gas via Ukraine is Bulgaria. Other EU countries will be able to meet their needs due to reserves accumulated, as well as alternative sources of fuel (liquefied gas) – from Norway to other parts of the world. At the same time, Ukraine’s dependence reduced. In summertime, the country is ready to provide itself with domestic gas, as well as reverse deliveries from the EU.

The problem is the necessity of pumping gas into holders for unimpeded transit to Europe in winter season, as well as insufficient volumes of European deliveries for heating season. Here Ukraine cannot do without the Russian gas. However, gas irregularities may seriously damage not only Ukrainians but Gazprom as well.

In 2014, the Russian gas giant repeated its anti-record of 2010 through delivering the lowest volume of gas over the past 20 years. Experts warn that if no changes are made in the company’s policy in the second quarter, suppliers of liquefied gas will be in the lead at the European market. Realising this, official Kyiv is availing itself of the situation: it was reduction in gas pumping via Ukraine that led to the reduction of the Russian share at the European market. In other words, Russia’s gas blackmail changed into Ukraine’s gas blackmail.

Beginning of the end

However, bad news for Gazprom is not over. As is known, impetuous drop in oil prices inevitably results in the fact that gas prices fall too. It is the fault of the Russian gas monopolist itself to attach gas price in some contracts to oil price. Fall in profits may be compensated by rise in sale volumes; however, Gazprom’s policy was directed to making gas more expensive for its clients, not to selling it at lower prices.

Even now, Russia is considering variants of how ‘to punish’ Ukraine and Europeans for reverse deliveries. Russian lawyers are scrutinising these deliveries and ready to lay claims by some contracts. At least, the Russian Energy Ministry made statements on the subject earlier April. It is essential to urgently win confidence in terms of emerging space of alternatives at the gas market. Russians keep on reaffirming their reputation of blackmailer with whom one can collaborate only if brought to bay.

In the meanwhile, a new agreement on the nuclear program of Iran threatens not only with a possible collapse of oil prices but provides opportunity to deliver Iranian gas to Europe via the Turkish pipelines. One cannot forget about activities of Brussels over alternative sources of energy, including from Azerbaijan. Attempts to arrange Russian deliveries to China are none other than conceptual projects.

Under these circumstances, Russia has two variants only: to realise finally that its gas bludgeon is reduced to dust and it is time to reconcile with those Russia threatened to freeze last winter, or wait until nobody pays attention to Moscow’s threats and stay thinking of what to do with gas that nobody needs. And the most important thing: where will the country take money from? That money, which used to uphold the phantom of Russia’s might...