Is It Time for Moldova to Return to Russian Gas?

Sergiu CEBAN

A long-known fact: Moldova is essentially buying the same Russian gas through big intermediaries, and its relatively low price is explained only by market conditions and lower demand in Europe. In order to eliminate all risks, the future energy strategy should be based not on political criteria detrimental to the country, but on expanding the Moldovan energy sector’s ability to buy fuel at the lowest possible cost wherever possible - including directly from the Russian supplier

Last week, Maia Sandu convened the Supreme Security Council to discuss risks and opportunities before the upcoming heating season. Given last year’s crisis and the lack of a clear forecast for the next six months, it is reasonable to explore all options in advance and make the necessary decisions. First of all, the state needs to ensure smooth supplies of gas and electricity. Based on the most complex crisis scenarios, there is also a need to create a financial reserve to help vulnerable categories of citizens. To minimize all risks, the relevant structures are tasked with accelerating the purchase of natural gas at favorable prices and its placement in storage facilities, as well as negotiations with electricity suppliers. The situation on international markets suggests that the energy crisis in Europe has already passed its peak. Prices on European exchanges are not as high as specialists have expected and vary from $300 to $500 per thousand cubic meters. Europe has obviously overcome the shock period. And all the volatility expected in the coming years is unlikely to have a critically negative impact on the EU countries. As of today, gas storage facilities in most European countries are almost full, primarily due to good reserves left after a warm winter. Meanwhile, the change in the structure of the European economy and its gradual deindustrialization have been equally significant factors. Last year, industrial production in the European Union fell by 20%, and by another 10% in the first half of 2023. Energy-intensive industries, in particular the chemical fertilizer industry, suffered the most. In addition, due to energy unpredictability, a number of large European companies relocated their facilities to the US and China. Of course, amidst this our authorities may not expect serious catastrophes in the energy sector. However, the consequences of a significantly decreased gas consumption in the EU are and will be inevitably reflected on the economy of the Union, as well as on European consumers. Current statistics already shows decreasing exports of Moldovan goods to the EU and higher exports to CIS countries. In many respects, Moldova’s energy stability will also depend on the nature of relations with Russia’s Gazprom, namely, on smooth resolution of some sensitive issues. First of all, it is the audit of the debts of the right bank. According to Minister Victor Parlicov, the audit of Moldovagaz has been finalized and Chisinau is preparing a draft agreement on the settlement of historical debts. That said, proposals as expected to be “alternative” to direct payments. The need to separate assets due to the implementation of the EU Third Energy Package is another stress point with the Russian gas monopoly. As it is known, Gazprom does not agree that the operator of the gas transmission system should be independent from the gas supplier to Moldova. At the same time, ANRE has recently started the procedure of applying financial sanctions to the SRL operator Moldovatransgaz for non-compliance with legal obligations related to ensuring its independence from Moldovagaz SA. In case of no compromise, in the second decade of September, although the Moldovan gas transmission system will remain in the ownership of Moldovagaz, it will be transferred to the operational management of VestMoldTransgaz, a subsidiary of Transgaz Romania. In case its interests are infringed, the Russian side may respond in different ways, including by toughening Gazprom’s position in the negotiations on the extension of the contract between Energocom and Moldavian State District Power Station. Meanwhile, the authorities coyly report that they are “exploring the advantages and disadvantages of supplying electricity from Moldavian State District Power Station”, the agreement with which expires at the end of September. However, it is quite obvious that at the current situation the prolongation of the agreement is in the interests of Chisinau and Tiraspol. And all sceptics should remember last November to understand the risks associated with alternative electricity supplies. Also, we should be mindful of Ukraine, which at any point may refuse to transit Russian gas through its territory. Moreover, the current contract expires at the end of next year, and Kyiv has already made it clear that it has no plans to negotiate its renewal with Russia. Therefore, politicians on both banks of the Dniester should seriously consider this negative scenario and think in advance about alternative options for arranging supplies. On the other hand, the issue of gas transit is naturally relevant not only for Moldova, but also for the majority of the EU countries in general. So, some solution can be found even without a Russian-Ukrainian agreement. In theory, the gas may be transported by booking gas transport capacities at open auctions. This is how Russian gas is currently delivered through the Polish section of the Yamal-Europe pipeline, although the transit contract expired in 2020. As a result, Gazprom will be able to buy the needed lots to pump gas through Ukraine on a daily basis. The only question is whether Kyiv’s real goal is to reduce the access of Russian gas to Europe or to make more money from Gazprom by inflating the auction price. While handling challenges in the energy sector, the authorities have to brace for the approaching election cycles, in particular local elections in autumn, and seek any opportunities to reduce the tariff burden. Theoretically, the current exchange prices for gas make it possible to start a gradual tariff reduction closer to the voting date. The main hurdle is the strategic reserve of “Spinu gas” purchased last year at an inflated cost. Even its conditional dilution with the current cheap gas does not allow reduce the prices for the end consumer. Claims that the country has completely abandoned Russian gas and successfully connected to the European energy grid do not impress anyone anymore. It has long been clear to everyone that Moldova, in fact, buys the same Russian gas through big intermediaries, and its relatively low price is explained only by market conditions and lower demand in Europe. Hopefully, the future energy strategy will be based not on political criteria detrimental to the country, but on boosting the Moldovan energy sector’s ability to buy fuel at the lowest possible cost wherever possible. In this respect, we should not rule out, among other things, the option of returning to the purchase of blue fuel directly from the Russian supplier.