Russia threatens to shut off the last natural gas taps to Europe. This would have consequences for the Austrian group OMV, which, however, declares itself ready for all eventualities
Russia threatens to shut off the last natural gas taps to Europe. This would have consequences for the Austrian group OMV, which, however, declares itself ready for all eventualities.
Russia has already made so many threats to Europe that it will completely shut off the gas taps, that the latest threat has gone almost unnoticed. But it was important. This time Moscow is warning the Ukrainian energy group Naftogaz that in winter it may stop the transit supply of natural gas to Europe via Ukraine. If this were to happen, Russia would lose its last major customer left on European soil, namely Austria.
Latest power supply diodes in Europe
It is recalled that, despite the war in Ukraine, the flow of natural gas from Russia to Europe through Ukraine has not yet been completely stopped. The relevant contract was signed in 2019 for five years, so it expires in 2024. Obviously, Kiev does not want to completely cut off neighboring countries from Russian gas supplies. In addition, breach of contract would be grounds for further appeals before arbitral tribunals, which would impose severe penalties.
But also in Russia’s Gazprom it seems that similar thoughts have prevailed until today. In addition, the Russian group needs the pipeline through Ukraine in order to make even a small profit from the EU, which was the largest market for Russian gas until 2022.
Brussels may have sanctioned Russia’s oil, but not gas. It was Moscow that took the initiative to cut the supply, in an attempt to put pressure on the European countries that support Ukraine. The first step was taken in the spring of 2022, when Russia cut off gas supplies to Germany through the Jamal pipeline, which runs through Poland. This was followed by a reduction in the supply of natural gas to western Europe through the Nord Stream 1 pipeline, while in August 2022 the supply through this pipeline was finally terminated.
This means that today Russia has only two pipelines for the supply of natural gas to Dysmas. The first is part of the TurkSTream pipeline, passes through Turkey and Bulgaria, where it is renamed Balkan Stream and continues to feed Hungary, via Serbia. Except that the capacity of the pipeline does not exceed 16 billion cubic meters per year. The second route, which was built under the Soviet Union and has a much larger capacity, is the pipeline through Ukraine, which Moscow is now threatening to close.
Are arbitration courts “illegal”?
The contract for the transit of natural gas in the period 2019-2024 provides that 40 billion cubic meters will be transported annually from Russia, via Ukraine and Slovakia, to the Baumgarten border station in Austria. From there the natural gas is piped to each natural gas importer for Austria, Germany, Italy, Czech Republic, Slovenia and other countries. Only the Austrian semi-state oil and gas group OMV remains among the major customers.
On July 6, Gazprom chairman Alexei Miller warned that Russia would impose sanctions on Ukraine’s Naftogaz if it did not stop appealing to arbitration courts. In this case, Miller said, “any kind of cooperation” would be impossible, and consequently the transit of natural gas through Ukraine. In fact, Miller argues that due to the “Russophobia that prevails in Europe” Gazprom cannot look forward to a fair verdict, therefore the arbitration courts in Switzerland or Sweden “are illegal”.
But Naftogaz considers that there is reason to appeal to the arbitration courts. And this is because the contract for the transit transport of natural gas expressly provides that Gazprom must pay anyway the stipulated transit fees for a transfer of 40 billion cubic meters. per annum, even if it actually carries a much smaller quantity. And the truth is that from 2022 the quantity is indeed much smaller, i.e. only 42 million m2. per day, instead of the predicted 109.5 million sq.m.
The confrontation over Sokhranifka
The Russian side claims that it is not paying because of Ukraine’s fault. And this is because since May 2022, Ukraine has suspended the transfer from the Sokhranivka border station in the Luhansk region, through which at least a third of the total amount of Russian natural gas passed. But shortly after the start of the war, the area came under the control of Russian troops. That is why the Ukrainians have moved the receipt of Russian gas to another point of entry – specifically to the Shuja transit station. The Russians have since reduced the planned quantity, citing “technical reasons”.
But how is it that, while previously Sokhranivka received a third of Russian natural gas, now Moscow has reduced by two thirds the amount it sends to Baumgarten in Austria?This is the question that the arbitral tribunal is now asked to answer.
Austrians are preparing for the worst
The Austrian group OMV maintains that it is prepared for all eventualities. However, the group’s chief financial officer Reinhard Florey said in February, last year the total amount of natural gas that eventually reached Austria from Gazprom was volatile, and on some days it did not even reach 30% of the forecast. Looking for alternatives, the group has already expanded into the Romanian market, signing an agreement to exploit the Neptun Deep field in the Black Sea from 2027. In this way, argues the head of the OMV group, Alfred Stern, “Romania becomes the largest producer natural gas within the EU”.
A little later the Austrians announced that they have secured additional quantities of natural gas from Norway, which can be transported through pipelines from Germany and Italy, but also as liquefied gas through LNG terminals in Italy and the Netherlands. “With all these actions we now have access to other sources of natural gas outside of Russia and will in any case have sufficient quantities to meet our obligations,” Alfred Stern tells the Financial Times. But he also says something else: “As long as Gazprom continues to send natural gas, we will continue to buy from Gazprom.”
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