Gazprom threatens to bypass Ukraine for gas transit

Gazprom CEO Alexei Miller reiterated accusations of Ukraine consuming excessive amounts of natural gas in the last couple of weeks and undersupplying gas to European consumers. Also, Gazprom confirmed it plans to start construction of the South Stream gas pipeline with a capacity of 63 bcm/year, which, according to a Gazprom representative, should allow it to completely bypass Ukraine for gas transit to Europe. Meanwhile, in recent days, Gazprom rechanneled part of gas transit volumes from Ukraine through Belarus. Overall, Ukraine transported 101 bcm of natural gas from Russia to Europe in 2011.

Vitaliy Vavryshchuk: The new wave of recriminations clearly points to no progress in ongoing Ukraine-Russia gas talks. The combined capacity of North Stream and the prospective South Stream pipelines can in no way substitute Ukraine’s gas transportation system, especially as consumption of Russian gas by Europe is expected to grow. We think the recent accusations are intended to signal Russia’s stance in gas negotiations will remain tough while Ukraine should keep gas transit volumes unchanged. We expect Ukraine-Russia gas talks to turn more constructive by end-March as the Presidential election cycle in Russia ends and political considerations become less important.