Ukraine Gas Boss: ‘Gazprom Destroyed Its Image as a Reliable Supplier’

For years, Ukraine has sat at the crossroads of Russia’s massive energy trade with Europe. Since unrest began roiling Kiev late last year, and especially in the wake of the annexation of Crimea by Russia this spring, Europe is as wary as ever of Russia’s ability to cut off its natural gas supplies. For Ukraine, which has been without Russian gas since June, the stakes are even clearer. That’s why the European Union, Ukraine, and Russia are trying to broker a deal that would see Russian giant Gazprom resume gas shipments to Ukraine this winter. But all sides are still far apart, and bitter feelings prevail.

Foreign Policy sat down to talk about the energy-fueled showdown with Andriy Kobolyev, the chairman of the board of Naftogaz of Ukraine, the largest natural gas firm in the country, as well as Yuriy Vitrenko, the head of international business at Naftogaz.

Foreign Policy: When the EU, Russia, and Ukraine brokered a framework deal last month to resume gas supplies, optimism prevailed all around. Yet there’s still no final deal. What’s the problem?

Kobolyev: There are many problems. We believe the price is not actually fair. But the biggest obstacle is that Gazprom has refused to sign the deal proposed by the EU. We are prepared to pay, we are prepared to be constructive, but what we need from the Russian side are guarantees of the supply of gas this winter. We need to sign a paper that will oblige Gazprom to supply a certain amount of gas on a certain schedule at a certain price for the next six months.

FP: The proposed deal would see Russia ship at least 5 billion cubic meters of gas to Ukraine this winter. Would that be enough to see you through, if you could reach agreement?

Kobolyev: We lack 5 bcm compared with what last year’s consumption was. So we are trying to save gas, implement energy efficiency measures. But from our side, looking at the quite gloomy prospects of reaching a commercial agreement with Gazprom, and as head of Naftogaz, I can’t explain to myself how we could send money to Gazprom without having firm commercial guarantees.

We believe there is a likelihood that gas will be fully cut off for Europe as well, and we will have to go through the winter on our own.

But you would also have to explain a deal to the Ukrainian people. How are we going to pay any money to the people who seized Crimea, who stole at least 2 bcm of gas there, they took part of our land — and now you are paying money to them? You have to have a very good explanation for that, because Ukrainian society is changing.

FP: You spoke of the risk of a cutoff. Poland, Slovakia, Austria, and Hungary have all seen supply disruptions from Russia in recent weeks, which limited the gas they in turn could send to Ukraine. Were those shots across the bow from Russia?

Kobolyev: I think yes. But I also think everybody in Europe understands what is going on. This will have a very strong, long-term effect on the European gas market. One, Gazprom has destroyed its image as a reliable gas supplier to Europe, and keeps doing so, which I believe is very irrational from their side. Two, gas as a source of energy is losing its attractiveness in Europe overall. All this means a significant decrease in Gazprom’s gas business for the next two or three years.  

Vitrenko: We think that Gazprom is bluffing, that it has done all it could. If they cut off gas supplies fully, no one will die. But it will be the end of Gazprom as a company — it cannot continue breaching all the contracts it has with Europeans. The change will come when they recognize that they cannot use gas as a political weapon.

FP: But in the past, such as in 2006 and 2009, when Russia cut off gas supplies, Europe laid plenty of blame on Ukraine, accusing it of stealing supplies meant to be shipped further west. If there’s a cutoff, do you run the risk of getting blamed again?

Kobolyev: Yes. Europe is afraid of blaming Gazprom directly. But how can you blame Ukraine if all the connections with Europe are contracts with Gazprom, not with Ukraine? Now, there is Gazprom between us and them, sitting there being a virtual operator, and actually preventing the free flow of gas between Ukraine and Europe.