New Russia-Ukraine Tensions Flare Up

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A new escalation in the ongoing conflict between Russia and Ukraine brings into focus the importance of the transit route for Russian natural gas toward Europe. Gas transit volumes have been continuous since the start of the conflict in 2014 when Russia annexed Crimea, even if the nature of these has changed. However, all bets are off if the new conflict turns into a full-scale war. Clashes between the Ukrainian army and pro-Russian rebels in eastern Ukraine since late March have led to the largest concentration of Russian troops at the Ukrainian border since 2014. Moscow also moved 15 warships to the Black Sea last week and restricted access to foreign warships near Crimea. Russia insists it is not a party in what it dubs a separate conflict between Kiev and the breakaway republics of Donetsk and Luhansk in eastern Ukraine. But it has warned Kiev against using force to reclaim rebel-held territory. The US, France and Germany have urged Moscow to withdraw troops. Russian gas transit flows through Ukraine have remained uninterrupted during the seven years of the conflict. Ukraine has over 100 billion cubic meters per year in transit capacity for Russian gas but currently only uses a fraction of the capacity. Gazprom has booked 40 Bcm/yr for 2021-24, down from 65 Bcm/yr for 2020, following a last-minute five-year deal signed in late 2019. The Russian firm can also book additional capacity at monthly auctions. In Ukraine, Russia mostly uses the Urengoi-Pomary-Uzhgorod -- or Brotherhood -- Progress and Soyuz pipelines. All routes are located to the north of the contested Ukrainian regions and transport gas to Slovakia and Hungary. Russia stopped supplying Romania via the Trans-Balkan pipe, which connects to Soyuz in Ukraine, on Apr. 1, with only Moldova receiving gas via the route (WGI Apr.14'21). Gazprom booked 86.2 million cubic meters per day for April at the Sudzha entry point on the Ukrainian border, as well as another 37.6 MMcm/d at the Sokhranovka entry point. Russian flows slightly exceeded booked firm capacity to 126 MMcm/d on Apr. 16-17 even though Gazprom has historically not used all booked capacity unless European gas demand was high. The conflict with Kiev is giving the Russian company more reasons to divert flows from the Ukrainian transit route. The firm was already trying to use more of the cheaper Yamal-Europe route across Poland, as well as its Nord Stream and Turk Stream offshore pipelines. Gazprom plans to redirect even more gas into Turk Stream 2 and the yet-to-be-completed Nord Stream 2 pipelines. But the US and EU are keen to force Russia to keep using the Ukrainian transit even after Nord Stream 2 is launched. Germany does not agree that the US imposes new sanctions against the pipeline project and believes it should let the pipeline be completed on the condition that Russia does not redirect all Ukrainian transit flows. Nord Stream 2 operations should be made “dependent ... on the behavior of Russia,” German Defense Minister Annegret Kramp-Karrenbauer said earlier this month. The US refrained from imposing new sanctions on Nord Stream 2 when taking measures against Russia over cyberattacks and interference in the US’ 2020 election. “Nord Stream 2 is a complicated issue affecting our allies in Europe,” President Joe Biden said last week, reiterating that Washington reserves an option to introduce new sanctions against the project. The US opposes Nord Stream on the grounds that it not only undermines the EU’s energy security but also threatens Ukraine’s gas transit revenues. Vitaly Sokolov, Moscow

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