Putin Warns Europe ‘No Alternative … Will Cut Gas Supplies’

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Putin Warns Europe “No Alternative… Will Cut Gas Supplies” (ZeroHedge, April 10, 2014):

European partners have left Russia with “no alternative” but to halt supplies of gas to Ukraine and Europe, according to a letter from Russian president Putin to European leaders.

  • *EUROPEAN PARTNERS LEAVE RUSSIA ‘NO ALTERNATIVE,’ PUTIN SAYS
  • *RUSSIA TO HALT UKRAINE GAS IF PAYMENT VIOLATIONS GO ON: PUTIN
  • *PUTIN: RUSSIA UKRAINE GAS SUBSIDY WORTH $35.4B IN PAST 4 YEARS

The remarks, as Reuters reports, were the strongest sign yet that Russia could curtail supplies of gas to (and through) Ukraine affecting supplies of gas to Europe (as they fear Ukraine will siphon off Russian gas meant for Europe). Russia is already reducing its delivery through Ukraine but it stil represents 39% of Europe’s demand. Gazprom has also been forced to move to pre-payment terms on any future deliveries (there’s your IMF bailout).

Via Reuters,

President Vladimir Putin has told European leaders a dispute over Ukraine’s gas debt to Russia could affect supplies of Russian gas to Europe and proposed urgent discussions on the matter, his spokesman said on Thursday.

The remarks were the strongest sign yet that Russia could curtail supplies of gas to Ukraine, which could increase tension between Moscow and Kiev and aggravate the worst crisis in East-West ties since the Cold War.

“The situation is urgent,” Putin’s spokesman, Dmitry Peskov, said after Putin sent a letter expressing deep concern about Ukraine’s $2.2 billion gas debt and warning of a possible impact on the transit of Russian gas to the European Union.

In the letter, Putin proposed “mechanisms of dialogue for urgent discussions of the situation that has developed,” Peskov said. He did not give any details about the proposal or say which leaders were addressed.

Putin also added that Ukraine is in trouble…

  • *PUTIN SAYS UKRAINE IS HEADING TOWARD DEFAULT
  • *PUTIN URGES TALKS WITH EU MINISTERS ON UKRAINE GAS DEBT
  • *PUTIN: RUSSIA UKRAINE SUBSIDY INCLUDES $18.4B TAKE-OR-PAY FINE
  • *GAZPROM FORCED TO MOVE UKRAINE TO PREPAYMENT DUE TO DEBT: PUTIN

Reuters further adds that:

  • IN LETTER SEEN BY REUTERS, PUTIN SAYS THERE ARE RISKS UKRAINE WILL SIPHON OFF RUSSIAN GAS DESTINED FOR EUROPE
  • PUTIN SAYS IT IS NECESSARY TO PUMP 11.5 BCM OF GAS INTO UKRAINE GAS STORAGES TO SECURE UNINTERRUPTED RUSSIAN GAS TRANSIT TO EUROPE
  • PUTIN URGES EUROPE TO URGENTLY DISCUSS MEASURES TO STABILISE UKRAINE’S ECONOMY AND ENSURE DELIVERY AND TRANSIT OF RUSSIAN GAS

We are sure any new sanctions that Obama and his motley crew are coming up with have all of this in mind…

In sum, Russia is saying that Ukraine must build its own gas reserves to guarantee that there is enough for Europe, and Ukraine is saying no. Russia is thus implying that European gas supplies are at risk because Ukraine will take the gas supposedly traveling to Europe.

The math, as performed by Gazprom, via Bloomberg:

Ukraine needs ~18bcm of natgas in underground storage facilities for future winter consumption, to ensure uninterrupted transit of Russian fuel to Europe, Gazprom Deputy CEO Vitaliy Markelov says at govt meeting outside Moscow. Ukraine has 6.5bcm in storage now, ~0.65bcm are in Crimeanunderground storage facilities. Markelov adds that  11.5bcm needed before winter to cost $4b-$5b, if history is any example gas in storage before last winter was 19bcm, and currently has 7.2bcm in underground storage, according to Naftogaz Ukrainy.

So to paraphrase: Gazprom is saying it demands that Ukraine build up its gas holdings to assured it won’t syphon off gas with a European destination, gas which will cost Ukraine up to $5 billion, money which Russia is now demand be paid up front. Or else Europe gets it.

1 thought on “Putin Warns Europe ‘No Alternative … Will Cut Gas Supplies’

  1. Already flexing his muscles……..this guy plays hardball.
    Brilliant, ruthless, and using every tool at his disposal.
    The former head of the KGB is revealing some of his ambition……….
    Why am I not surprised?
    Even worse, it raises tension towards another world war. The Ukraine has all the pipelines, and that is what the US is upset about………..

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