The New Geopolitics of Natural Gas by Agnia Grigas

Author:Agnia Grigas [Grigas, Agnia]
Language: eng
Format: epub
Publisher: Harvard University Press
Published: 2017-04-24T04:00:00+00:00

Conclusion

Despite being important to both Europe and Russia for their gas flows, Ukraine and Belarus hold questionable leverage in their energy relationships with Moscow. Certainly, they have benefited for years from transit revenues and lower gas prices, but these benefits have accrued to each country’s elites and vested gas interests rather than to the economy or the population at large. Depending on such rents and subsidies has hindered any energy diversification, efficiency, or domestic production efforts, entrenching the status quo of transit and import dependence and gas debts. Indeed, Gazprom’s flexibility on gas prices has been limited. Since the 2000s, Gazprom sought to raise the prices of its gas exports to market levels even for countries of the “near abroad,” making Minsk’s or Kyiv’s long-term hopes for lower prices in exchange for concessions unrealistic without the diversification that allows imports from elsewhere and improves their bargaining positions.

In the past, Gazprom also issued threats to increase gas prices if Ukraine or Belarus did not agree to sell off their energy assets, repay their debts, or follow Moscow’s political lead. The massive run-up of debts by both countries in the end served Russia’s interests; these were used to facilitate not only Gazprom’s acquisition of local gas infrastructure but also, in Ukraine’s case, Moscow’s lease of the bases in and around Crimea. In the end, Ukraine’s gas debts indirectly cost the country its territorial integrity, with Russia’s annexation of the peninsula. The Russo-Ukrainian conflict, spilling over into a separatist war in the Donbas region, has spurred some changes in the country since 2014. Among Ukraine’s most significant achievements as a result of this crisis is increased reverse flow of gas from European states and the start of energy-sector reforms. However, it is uncertain whether Ukraine will be able to stay the course. Its ability to complete a critical mass of reforms to secure its gas sector through diversification, domestic production, and efficiency programs remains at the whim of a number of domestic, regional, and international political and economic factors.

This established status quo of gas transit and import dependence and the accompanying corruption and entrenched interest groups will constrict the abilities of both Ukraine and Belarus to seize opportunities that arise from changes in global gas markets, such as the shale boom or greater interconnection of gas markets in Europe. Yet Kyiv has at least made an effort to alter its gas predicament, being forced to do so in part by the crisis in relations with Russia and threats to its state since 2014. Although Ukraine currently seems to be in a much more difficult situation in facing conflict and the Kremlin’s aim to reduce if not eliminate transit via the country, it still has more options than Belarus in the long term.

Looking forward and considering the transformation of the global sector, we can expect that the role of transit states will diminish. As European countries seek access to LNG and greater pipeline interconnection with their neighbors, enabling different supply routes, the importance of gas transit via traditional routes such as Ukraine and Belarus will decrease.

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