Professor of Global Energy at Warwick Business School, Michael Bradshaw, has issued the following statement on the Russian decision to cut off gas supplies to Ukraine:
"Half of the gas supply that goes to Europe goes through Ukraine, and in the main it goes to south eastern Europe. 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 the winter.
“But if this drags on for longer it could have a significant effect on gas supplies and prices this winter. The market will be jittery. The gas price spiked when the trouble in Ukraine first started, but it came back down, so it will be jittery again.
"Another issue for the UK is that it has a very modest amount of gas storage so, in periods of heightened demand - like the cold snap in March 2013 - the UK is dependent on European gas markets to source additional supplies.
“Everyone is a loser in this stalemate. 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.
“Ukraine feels the gas price being offered is inflated for political reasons. The discounts on offer are not of the scale they were before the change in Government in the Ukraine. Despite its efforts, the EU has been unable to broker an agreement and you sense it won’t be resolved until the political situation between the Ukraine and Russia is. This is a litmus test of the relationship between Ukraine and Russia. The only way out is for the EU to persuade Ukraine to accept an agreement and be financial guarantors.
“In the longer term Ukraine has to reduce its structural dependence on Russia through domestic reforms, otherwise it will always be vulnerable to political factors.”
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