Thread by @profalanriley1

1. Preparing for the third European Gas Crisis-will Moscow or Brussels Blink First?? my latest piece in The American Interest the-american-interest.com/2019/07/16/put…

2. One of the major and immediate issues for the new European Commission that comes into office on 1st November is the the prospect for a third European gas crisis on 1st January 2020.

3. This will be triggered by the expiry of the Ukrainian transit contract on 1st January 2020. The European Commission has been holding trilaterals since July 2018 with @GazpromEN and @NaftogazUkraine . No agreement has yet been reached.

4. In 2018 the Ukrainian transit route provided 83bcm of gas flows onward into the rest of Europe (by comparison total German consumption was 88bcm). On expiry of the contract & with no new contract agreed the EU faces price surges and supply shortages

5. It is true that after the 2009 gas crisis measures were taken to limit the impact of any future crisis. That will mean that the crisis should be less severe than in 2009. However, the contract expiry will cause a price surge across the EU at the very least..

6. Furthermore if it goes on for more than a couple of weeks, shortages would begin to impact on less integrated EU markets in the CEE states, and there would begin to be supply problems in Western Europe, such as in Italy which has significant Russian supply dependence

7. Luckily for the EU, European gas markets are now more integrated, and there are alternatives. There is plenty of liquid natural gas (LNG) available. The UK for instance has huge LNG regasification (51bcm) and also approx 30bcm of reverse flow capacity across the Channel

8. One immediate question is would the Russian state really be willing to inflict a third gas crisis? The Kremlin would be damaging Gazprom's customers, its revenues and its influence. However, with Russian gas the choices are not in all circumstances commercial

9. There are two key reasons for a major crisis. The first is the neglected (in the energy policy world) issue of the Ukraine-Russia conflict. Russia has annexed Crimea and occupies part of eastern Ukraine. Russian and Ukrainian forces exchange fire daily over the line of contact

10. Gas transit through Ukraine hampers the scope of Russian military operations in Ukraine & secondly, the transit fees of $3 billion (in 2018) are roughly the same amount as the Ukrainian defence budget.

11. The second is Nord Stream 2. One way to force its completion-to speed up the Danish route licensing and waive the application of EU law- is by creating a crisis over Ukrainian transit, Moscow hopes to thereby force completion of the pipeline on its terms

12. The question is whether such a strategy would work. Whilst the EU would face a price surge and supply shortages which would get worse as it went on, paradoxically the longer it goes on the easier it becomes to fix-with a raft of emergency measures

13. The danger for Gazprom is that those emergency measures become permanent, and subsequently it loses market share, revenue and influence in a large part of the market.

14. I suspect therefore that Moscow is more likely to try and panic the EU by running a major 'shock and awe' transit termination scenario aided by a major disinformation operation to try and panic the EU & the MS into folding.

15. The question therefore is whether the EU will actually panic and fold, or will Moscow after a few weeks blink and then turn around, blame everybody else and do deal?