So far there have been no reports that gas supplies to Ukraine have been cut. For Russia, a weaker energy hand

Russia has long used its vast energy supplies for political leverage, but its new conflict with Ukraine could show just how much that power has waned.

Twice before, Russia has shut off natural gas shipments through pipelines to Ukraine during fights over energy prices and past-due payments, but Ukraine’s crucial location between OAO Gazprom and its European customers gives it some leverage that may help prevent Moscow from leaving Ukrainians in the cold.


So far, there have been no reports that gas supplies to Ukraine have been cut, but it is now facing a steep jump in the price it pays for Russian gas as a result of the latest conflict with Moscow. Gazprom said on Saturday it might end last year’s agreement to supply Ukraine at a cheaper rate unless it’s paid $1.55 billion owed for fuel, Bloomberg reported.

Ukraine has said it doesn’t know when the payments to Gazprom will be made.

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Still, Ukraine and the European countries who have long relied on Russian gas to heat their homes and fuel power plants and manufacturing sites have also grown weary of Moscow calling the shots on energy supplies, and they’ve sought to diversify their energy sources.

Russia has “absolutely” lost its natural gas leverage because Ukraine can produce gas domestically, said Anders Åslund, a senior fellow at the Peterson Institute for International Economics who has been an adviser to both Russia and Ukraine, adding that both Royal Dutch Shell and Chevron have signed deals to develop gas fields there, though those supplies are not yet online.

Cutting off the gas supply also comes with risks for Russia.

When it last cut off Ukraine from supplies in 2009, 18 other countries further down the pipeline reported they suffered from supply disruptions as well, including Austria, Germany, Turkey, Greece and Italy.

But Europe, which relies on imports of oil and gas to supplement its own modest production, has seen the flow of liquefied natural gas, or LNG, surge in recent years from producers in Africa and the Middle East. It’s been helped in part by the shale gas bonanza in the United States, which took a major customer off the international market, leaving ample supplies for the continent.

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That means European countries that once had no choice but to strike deals for gas with Gazprom now have other options.

“So if Gazprom stops [exporting] once again, then it’s third strike out for Gazprom,” Anders said. “Europe will stop buying gas from Gazprom until the whole situation changes.”

Gazprom insisted Monday that Europe is set to become even more dependent on the company’s gas supplies in future years, Reuters reported from the company’s annual investors’ meeting in London.

“Gazprom has increased its share in European markets because Europe’s domestic production has fallen in countries such as Britain and Norway,” Gazprom deputy head Alexander Medvedev said, according to Reuters. He added, “We see no signals that the situation in Europe will change.”

He said Gazprom’s share of European gas markets last year rose to 30 percent from 25.6 percent in 2012.

But Ukraine is benefiting from the calendar during the current crisis.

A threat by Moscow to shut off gas shipments in October or November would be far more ominous than it is now in March, according to Mikhail Korchemkin, founder and managing director of East European Gas Analysis.

The warming weather allows Ukraine the chance to sit tight, since it won’t need Russian natural gas for space heating for about six months, he said.

Ukraine can also start converting more power generation from natural gas to coal and reverse the flow of gas in pipeline in Western Ukraine to start receiving imported natural gas from Germany, Greece and elsewhere, he said.

All that means that the energy exports that are the lifeblood of the Russian economy would be threatened, since Gazprom would lose billions of dollars if the gas stops flowing through Ukraine.

“It’s like a survival game,” Korchemkin said.

“I don’t think Gazprom would want to play this game until the next winter. They would be in the red because the company will be losing money without that revenue,” he added.

Still, that doesn’t necessarily mean Russia won’t move to shut off the natural gas exports in the near term.

“I wouldn’t exclude that, but it would be very stupid,” Åslund said. “They’ve done it twice before and it cost them a lot. They should be aware of the cost, that doesn’t mean they are aware of the cost.”

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