Ukraine-Russia Energy Relations: “A Museum of Contradictory Truths”

The good news: the Ukraine and Gazprom have reached an agreement on gas debt, thereby preventing another standoff like last year. The bad news: all of a sudden Gazprom says that they are owed $700 million more than the $1.3 billion debt they claimed just last week, while Ukrainian officials say that the debt is not held by the state, but rather by the notoriously opaque monopoly trading intermediaries Rosukrenergo and Ukrgazenergo. Is the shakedown political or commercial this time around? One analyst interviewed by the FT says that it really wouldn’t matter in the long term whether or not the Ukrainians elect a pro-Russian government – the squeeze is coming regardless:

James Sherr of the UK’s Defence Academy, a research and educational institute for defence staff, described the Ukraine-Russia energy relationship as ”a museum of contradictory truths.” ”Gazprom is squeezing Ukraine and other post-Soviet states to get out of a trap of its own making: underinvestment in new production. [This] is the only way to meet rising demand in the EU and in Russia itself,” he says. ”Whoever runs Ukraine, however pro-Russian the government, the squeeze will continue, and the spasms between stability and crisis will grow shorter and sharper.”

It is widely assumed that the grand prize is the eyes of Gazprom is the Ukraine’s underground gas storage facilities, which may at some point be offered up as an asset swap for the gas debts. To resolve the current debt dispute, the Ukraine has agreed to send back gas from these storage facilities, which will limit Kiev’s ability to withstand a future supply cut.