Yesterday, when Gazprom was supposedly “troubleshooting its systems”, we reported that in what was the first salvo of Europe’s latest cold (quite literally, with winter just around the corner) war, Poland complained that up to 25% of its usual gas deliveries from Russia had been cut. Russia indirectly hinted that this was also a result of Ukraine using “reverse flow” to meet its demands, with Europe allowing Kiev to syphon off whatever gas it needs without paying Gazprome for it. It also led Poland to promptly admit it would halt reverse flow to the civil-war ridden country. Fast forward to today when Polish financial website Biznes reports that things are going from bad to worse in Russia’s energy retaliation war, after Poland claimed a 45% shortfall in Russian natgas imports as of Wednesday.
Not surprisingly, Gazprom has said that is not the case, which leaves two options: either someone is lying, or the Ukraine is quietly, and illegally syphoning off gas destined for Europe.
Poland’s listed natural gas group PGNiG noted Wednesday natural gas deliveries from the east 45% below the ordered level, the firm said in a Thursday press statement. Wednesday marks the third straight day when Poland claims to have received less gas than ordered from Russia’s Gazprom. Poland claims that shortfall forced a shutdown of re-export to gas-strapped Ukraine and an increase in imports from other directions to compensate the loss.
“Under the Yamal contract, PGNiG has the right to collect volumes lower or in line with the maximal daily amounts contracted for particular entry points,” PGNiG said. “Volumes ordered by PGNiG were below the maximal level – that is line with the contract. Nevertheless, they have not been realized by OOO Gazprom Export.”
In order to make up for the missing volumes from the east, PGNiG claims to have launched supplementary gas deliveries via Lasow at the German border and via Cieszyn at the Czech border, the firm noted in its statement.
Additionally, on Thursday PGNiG launched natgas supply through the Mallnow point at the Yamal pipeline on the German border, PGNiG said.
A spokesperson for PGNiG, Dorota Gajewska, refused to indicate if the level of Russian deliveries constituted a reduction from any prior periods, reiterating only that delivered volumes are below the contractually requested level, she said in an interview for broadcaster TVN24.
On Wednesday PGNiG claimed that deliveries had fallen 20% short of order on Monday and 24% short of order on Tuesday.
The firm said it was “investigating” the reasons behind the delivery shortfall, in particular whether it is of technical or commercial nature, and said it was compensating for the volumes with imports from other directions.
On Wednesday PGNiG still hasn’t received any explanation from Gazprom, the firm said.
Deliveries to PGNiG’s clients are being carried out without disruption, and there is no need to tap undergroung gas storage facilities, filled to 100% of their capacity (around 2.6 bcm).
PGNiG’s long-term Yamal contract with OOO Gazprom Export, dating back to 1996 and renegotiated in 2010, provides for annual natural gas imports of 10.24 bcm, drawn at Drozdowicze, Wysokoje & Polish points along the Yamal pipeline. The contract is based 85% on a take-or-pay formula. PGNiG will seek a gas price reduction during a renegotiation window that opens in November 2014.
So as the new balance of power is suddenly dawning on Europe, as is the realization that Putin does have all the leverage (as otherwise Gazprom would never suicide itself in a way as to show it can proactively cut European gas supplies, even if the recipient is a country that has been so vocally beligirent toward Russia as Poland), the Europeans have decided there is no point in waiting any longer, and as was blasted moments ago:
- BERLIN – EU DIPLOMAT SAYS NEW SANCTIONS AGAINST RUSSIA TO COME INTO FORCE ON FRIDAY
More from Reuters:
European leaders spoke early on Thursday and agreed to push ahead with a package of sanctions against Russia by the end of the week, due to its aggression towards Ukraine, the spokesman for British Prime Minister David Cameron said.
“This morning the prime minister took part in a joint call with several fellow European leaders; president (Herman) Van Rompuy, Chancellor (Angela) Merkel, president (Francois) Hollande and prime minister (Matteo) Renzi,” the spokesman said.
“(They spoke) to discuss the subject of sanctions against Russia in the context of Ukraine and agreement to proceed with the implementation of the sanction package that was agreed earlier in the week.”
Which means that the gloves are now fully off and Russia is content that it will be cold enough soon enough to give Putin even more of a first mover advantage, and thus negotiating leverage while the part of Europe, and all of Ukraine, shivers in the cold.
- RUSSIA WAITS FOR SANCTION DETAILS TO DECIDE HOW TO RETALIATE
- RUSSIA WILL RESPOND TO NEW EU SANCTIONS: LUKASHEVICH
- RUSSIA SAYS READY TO RESPOND TO NEW U.S. SANCTIONS
#BREAKING Russia has drawn up second set of anti-Western sanctions: Putin aide
— AFP news agency (@AFP) September 11, 2014
In other words, Russia’s staggered gas reduction, which we predicted last weekend would happen momentarily, as it has, is not a retaliation but merely a side-effect. One wonders just how bad things will escalate to if in addition to its gas Europe loses, for example, access to Russian airspace, or worse.
And the full wrap of the most recent events surrounding Ukraine and Russia, via Bloomberg:
- EU to impose new Russia sanctions tomorrow, will lay out conditions for eventually suspending measures
- Russia says will retaliate against new sanctions, says they are “unfriendly policy”; may target cars, textiles: RIA
- Ruble falls to record vs dollar
- U.S. sees Ukraine as arena for geopolitical battles, Russian foreign minister says in interview to Itar-Tass
- Ukraine needs to regroup, strengthen army; must open way to NATO membership, Parliament speaker tells Fokus magazine
- Donetsk airport shelled by rebels overnight: Ukraine defense ministry
- Gazprom may face biggest decline in European gas revenue in five years; sales to EU, source of 40% of rev., forecast to fall >10% to ~$55b this year, co. officials say
- Putin orders war readiness test for East Russian regions: Interfax
- McDonald’s being taken to court by Russia’s consumer-safety regulator for allegedly understating caloric values, microbial contamination in products; suit delayed as chain defends calorie count
- Ukraine seeking to prevent Russian cos from getting licenses to run 3G networks in planned auction
Summary: tomorrow’s latest round of sanctions and countersanctions should be interesting.