West Tries To Loosen Russia’s Gas Grip

  • Date: 10/03/14
  • Ian Talley and Amy Harder, The Wall Street Journal

Western officials are scrambling to loosen Russia’s energy stranglehold on Ukraine, the latest sign of growing pressure on Moscow to end the crisis.

The options being considered by officials from Brussels to Washington include larger exports of U.S.-made natural gas, reversing the flow of natural gas through pipelines from Western Europe back into Ukraine, and accelerating plans across Europe to buy more energy from countries other than Russia.

“If no solution to this can be found,” European countries will “recast their approach to energy and economic links with Russia over time,” U.K. Foreign Secretary William Hague said Sunday.

Western officials also have threatened sanctions against Russia if the Kremlin continues its occupation of the Crimea region of Ukraine. The threats have failed so far, with Russian President Vladimir Putin declaring his support Sunday for Crimea’s move to secede from Ukraine. The region could join Russia as soon as this month, a Kremlin-backed leader in Crimea said.

The White House said President Barack Obama would meet Ukraine’s new prime minister in Washington on Wednesday, warning that Moscow would face even more outside pressure if there are further steps toward Russia annexing Crimea. A referendum to ratify the move is set for March 16.

Ukraine’s reliance on Russia for its energy needs was thrust into the center of the crisis Friday when Alexei Miller, chief executive of OAO Gazprom, said Ukraine owes the gas exporter $1.89 billion and had failed to meet a Friday deadline for payment of its February deliveries.

He warned that failing to pay the bill could cause Gazprom to turn off the natural-gas spigot to Ukraine. The threat raised the specter of a repeat of a shutdown in 2009 that cut off supplies to Ukraine for several weeks, raised prices and caused some shortages in other parts of Europe.

Ukraine relies on Russia for 70% of its natural-gas supply. Ukraine also is a key transit country for Russian gas headed to more than a dozen other European nations.

Six European nations rely on Russia for 100% of their gas, while seven others get at least half their gas from Russia. Europe’s dependence limits the immediate options if the Kremlin cuts off natural-gas shipments to Ukraine.

The energy-related discussions by Western officials are at an early stage, and none of the scenarios is likely to have an immediate effect on the crisis.

“In reality, there is very little in the short- to medium-term you can do,” said Edward Chow, a senior fellow at the Center for Strategic and International Studies and a former Chevron Corp. CVX +0.20% executive.

Officials in Moscow remain convinced that the biggest immediate threat is that the Western responses will undercut the price Russia gets for exports. The Kremlin expects demand from Europe to rise as supply from Norway, the U.K. and elsewhere slows. Customers in Asia also could buy more.

In the long run, though, Mr. Putin’s strategy in Ukraine might persuade some major energy customers to seek a larger chunk of what they need elsewhere, including natural gas from the U.S. and Central Asia.

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