Gazprom Cuts Off Gas Supplies to the Ukraine... Again

Keith Kohl

Written By Keith Kohl

Posted June 19, 2014

Gazprom cut off gas supplies to Ukraine on Monday.

This, of course, has happened before, and these two countries have had a long history of standoffs over Russia’s natural gas exports.

What’s the latest row over? The Ukraine reportedly owes Gazprom $4.5 billion for past gas deliveries, prompting the latter to cut off supplies until the country pays its debts and prepays for future deliveries.

This future supply won’t come cheap, either. Russia offered its western neighbor the opportunity to pay $385 per thousand cubic meters, slightly more than the $268 per thousand cubic meters that the Ukrainians are used to paying.

Don’t get me wrong, dear reader, I’m all for the free market. Gazprom should be able to cut exports to the Ukraine if they refuse to pay for their gas – $4.5 billion is hardly a drop in the bucket.

But at this point, we’re talking about a lot more than gas here. And the ongoing spat in eastern Ukraine (not to mention Russia taking the Crimea back) suggests that Russia is willing to use its natural resources as a weapon if necessary.

This may not seem like a huge deal right now while the weather is warm, but just imagine what would happen if this issue persists until winter rolls around.

Make no mistake about it, Russia is an absolute powerhouse in global natural gas production, which is something that will continue for decades…

A recent reports suggests that for Russia to tap its vast $8.2 trillion worth of tight oil resources, which means Russia will need to rely on the experience of American companies that have been tapping into the major plays found within the lower-48 states. access to these technologies and the experience to use them properly (at least, they will at first).

Moreover, this dispute could potentially lead to further sanctions against Russia. And any sanctions that could disallow energy corporations from working in Russia’s huge fields. After all, Western Siberia alone produces nearly six and a half million barrels per day!

eac blog chart 1 6-19

Then again, the fact that Russia is making this decision now, rather than during the winter months when demand is incredibly high, there’s a good chance that Putin is looking to give the Ukraine a chance to pay its debts. At the moment, the Ukraine has enough natural gas in storage to last until October, perhaps longer if the country can conserve it.

The bottom line here is that we shouldn’t expect any serious repercussions this time around, or at least for a few more months, and we can fully expect Putin’s Gambit in Ukraine to continue to unfold in the months ahead.

Until next time,

Keith Kohl

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