Ukrainian Gas Transit and Moldovan Prospects

Anton ŠVEC

Moldova made it through the current heating season without any visible shocks, amidst accumulated natural gas reserves and a favorable global situation. However, there is no certainty as to the next one due to the terminated contract for transit through Ukraine

After the time of upheaval in the period between 2022 and 2023, Moldova, which has accumulated substantial reserves of natural gas in storage facilities in Ukraine and Romania, feels relatively comfortable. On the domestic market, the situation even allowed it to slightly reduce prices for end consumers and to hand over the gas transmission system to the Romanian company Vestmoldtransgaz without political scandals. Our country has come significantly closer to implementing the gas legislation (laws on natural gas, gas market and gas transit) adopted almost 10 years ago, based on the obligations to the European Union within the framework of the so-called “third EU energy package”. Moreover, the government, through administrative and legal levers, managed to reject without much conflict the scheme proposed by the fugitive oligarch Ilan Sor to supply Russian gas through Turkey at reduced prices (it is still unclear whether the corresponding contract, rather interesting on paper, was backed with real volumes). Despite the fact that due to “Andrei Spinu’s dominance” gas prices for enterprises and household consumers are higher than the European average, the authorities managed to keep the gas market stable through the compensation mechanism and the exhaustion of accumulated reserves. They focused on other problems which in most cases resulted also from the special “business” skills of the former head of the presidential administration. Nevertheless, Moldova’s position allows it to bargain quite confidently with PJSC Gazprom in the future, both on gas purchases and on the audit of the historical debts of the right bank. Vadim Ceban and Victor Parlicov, heads of the sector, have repeatedly pointed out their readiness to buy gas from Russia at favorable prices, although there are calls from Brussels to refuse to cooperate with the Russian monopoly. The interests of Transnistrian industry, including the Dnestrovsk-based power plant controlled by the Russian group Inter RAO and local authorities, remain an important factor. Right now, the entire volume of natural gas coming through the Ukrainian gas transit system goes to the left bank of the Dniester. MoldGRES diligently fulfils the contract to offload electricity to the right bank, but the local electricity transmission company Dnestrenergo has not received a Moldovan license and therefore is not obliged to transit from Ukraine and Romania to Moldova, if such a need arises in the event of a shortage of Russian gas. Moreover, the “minister of economy” of Tiraspol, Sergey Obolonik, has repeatedly stated that due to the obligations under the energy contract, the region’s industry is operating (until the end of the heating season) in conditions of gas shortage, which prevents a full launch of production at a number of large enterprises. The prospects for Moldova’s gas and energy markets in the coming year are largely determined by the (non-)prolongation of Russian gas transit through Ukraine. The tripartite contracts signed for 10 years between the supplier (Russia), the transit country (Ukraine) and consumers (Moldova, Balkan countries, the European Union) expire on 31 December 2024. Prime Minister Denys Shmyhal has already confirmed Ukraine’s readiness to provide transit services next year, but he put forward the condition of setting up a European consortium, which would act as a contracting party with Gazprom and also as a payer to Kyiv for the transportation of blue fuel. In fact, this position was stated before – back in winter, Slovak Prime Minister Robert Fico spoke about Ukraine’s intention to preserve transit. Landlocked countries in the EU’s east, as well as some Balkan states, are the main consumers of pipeline gas transported through Ukrainian territory. Meanwhile, the European Commission’s position today is somewhat tough. European Commissioner for Energy Kadri Simson recently said that Brussels is not interested in extending the trilateral agreement with Russia. She called for the use of Ukraine’s gas transmission system, including as a natural gas storage facility, to integrate it into the European system, but favored sanctions against Russian pipeline and liquefied natural gas. However, she admitted that there is no unanimous support for these measures from EU members. Obviously, the final decision will depend on the national states and will be made by the new composition of the European Commission, which will be formed after the elections to the European Parliament scheduled for June. It is hard to imagine that Kyiv, in dire financial straits, on the threshold of a new mobilization, would give up its transit capabilities, which, among other things, allow it to partially manage the intensity of hostilities while leaving part of its own infrastructure protected. Alternative (Turkish) supply routes (the gas hub announced by the Russian and Turkish leaders is still non-functional), including those that imply filling the pipe with gas from Azerbaijan, do not meet all the energy needs of European countries, even taking into account the expansion of LNG supplies from the US and Northern Europe and the construction of new terminals. The development of the Black Sea shelf by Turkey and Romania has not reached an active phase. The matter of Ukrainian gas transit is also strategic for Moldova. Theoretically, we can fulfil the European Commission’s recommendations and receive Russian gas from the western direction, but such a scheme runs the risk of being quite complicated and expensive, significantly increasing the cost of transit for Chisinau and Tiraspol, as well as reducing the demand for Ukrainian underground storage facilities. The technical connection in the Causeni area has been finalized, but this option will be a real problem for both parties. Unfortunately, in this situation Moldova is not a subject but an object of big politics, deprived of the right to make independent decisions. And the further trajectory will be determined by Brussels, while the possible costs will fall on the population of Eastern European countries.