Russia shuts off natural gas shipments to Ukraine

Russia’s OAO Gazprom has halted shipments of natural gas to Ukraine after the collapse of negotiations over gas prices. The shutdown is the first since January 2009 (OGJ Online, Jan. 7, 2009).

In a recent daily market update, analysts at Raymond James & Associates Inc. pointed out the differences between the two disputes: “In contrast to the 2009 gas crisis,…the fact that this is June will naturally mute the impact of the supply cut-off. In the past, these gas shutdowns have had an impact beyond Ukraine, across central and eastern Europe, as far west as Germany.”

RJA analysts said, “Since the vast majority of the pipelines carrying Russian gas westward traverse Ukraine, Ukraine can effectively siphon whatever gas it needs out of the portion allocated to other customers. The immediate political backdrop, of course, is the crisis over Crimea and eastern Ukraine.”

They added that the broader context is Europe’s energy security. “European countries have been taking proactive steps to reduce their dependence on Russian gas—precisely to protect themselves from such an eventuality—including more LNG imports, greater renewable power adoption, and tentative moves towards domestic shale gas development. Similarly, Russia’s recent gas megadeal with China will result in the diversification of its gas exports as well,” they said.

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