Russia switches off Ukraine gas supply

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The dispassionate words of Ukrainian energy minister Yuri Prodan belied a growing concern that the escalation of tensions between Russia and Ukraine could begin to impact the rest of Europe.

"Gas supplies to Ukraine have been reduced to zero," Prodan said. A statement from Gazprom, Russia’s state-owned gas giant, revealed that failure on Ukraine’s part to settle $1.95 billion of a $4.5 billion debt owed meant the country would have to pay for its gas upfront until the debt was settled.

Gazprom has confirmed that it will continue to supply gas to Europe, but its decision to turn off the Ukrainian tap is likely to cause jitters across the rest of the continent.

"Half of the gas supply that goes to Europe goes through Ukraine, and in the main it goes to south eastern Europe," said Michael Bradshaw, professor of global energy at Warwick University Business School, U.K. "Given that we are in the summer and the level of gas storage in Europe remains high after a mild winter, the immediate threat to gas supplies is not going to be as significant as they were in 2006 and 2009, when the disruptions happened in winter."

Nevertheless, warned Bradshaw, gas prices are like to spike as the market reacts to the news, and countries such France and the U.K., which both possess dwindling reserves of gas storage, are likely to accelerate plans to lessen structural dependence on Russian gas.

"Everyone is a loser in this stalemate," Bradshaw said. "It is doing Russia reputational damage and the EU is stiffening its resolve to reduce its reliance on Russian gas, but many European companies have contracts into the 2020s with Gazprom."

Ukrainian officials feel that the gas price being offered has been inflated by Russia for political reasons. Yet amid the dispute, Ukraine has offered assurances to the EU that it will fulfill its gas transit commitments, with Gazprom also reiterating its intention to supply European consumers with gas at "full volume".

Last month, the European Photovoltaic Industry Association (EPIA) stressed that the Ukraine crisis was a clear and stark illustration of Europe’s need to rebalance its energy supply mix. "What is happening in Ukraine should affect the European energy mix in future," EPIA policy director Frauke Thies told pv magazine at the time.

Speaking to pv magazine today, Thies added: "Europe needs to diversify energy supplies – and here PV plays a central role as an obvious and secure solution. However, a cost-effective renewable power supply also depends on the use of flexibility in the system, including from demand response, storage and also gas. This is why Europe has an interest in securing its gas supplies, e.g. via the creation of an integrated European energy market."