Tensions in the Moldovan Energy Sector

Christian RUSSU

Further gas supplies from Russia to Moldova are under threat of disruption due to sharp deterioration of international and regional situation

A month ago, the prospects for gas imports from Russia to our country seemed optimistic. The Moldovan-Russian company Moldovagaz entered into negotiations to agree on organizational and technical issues of continuing transit through Ukraine. All interested participants agreed on the basics of father supplies’ scheme. Third-party traders authorized to operate within the European community purchase gas on the Russian-Ukrainian border and ensure its delivery to the end points, be it Slovakia, Hungary or Moldova. The only thing left to do was to draw up intergovernmental and inter-operator agreements with Moscow and Kyiv on the basis of these principles. However, since the end of October, a new round of tension has been brewing between Russia and the West, threatening to sweep away any possibility for a much-needed compromise for Moldova. The election of Donald Trump in the United States, who promised a quick détente and an end to the hot phase of the conflict in Ukraine, was a symbolic start to raising the stakes. In order to narrow the room for maneuver for the future president, the White House administration and its overseas allies rushed to catch up with the departing train, going for a sharp escalation. The strikes on recognized Russian territory by Western long-range missiles, timed to coincide with the Kremlin’s approval of a new nuclear doctrine and exercises of the Russian strategic forces, opened a fundamentally new page in the confrontation. After a long pause, attacks on Ukraine’s energy infrastructure as a pre-emptive response have resumed. Moreover, an intercontinental ballistic missile was used for the first time - so far, thank God, in a non-nuclear version. Needless to say, this situation has created significant risks for energy stability in the entire region. Exactly the uncontrolled increase in the stakes in the military theatre of operations in recent weeks poses the main threat to any negotiations on gas issues. The intensification of the Russian offensive in the Kursk oblast may force the Ukrainians, when retreating to their own territory, to simply ruin Russia’s main gas infrastructure. Regardless of the possible methods, the circle of perpetrators and subsequent mutual accusations, such an act would instantly put an end to any prospects of continuing gas transit through Ukraine. Our authorities have repeatedly stated that they are ready for any scenarios, including gas imports through the Trans-Balkan corridor capacities in reverse mode. This is indeed the best option if the Ukraine’s one is unavailable. Under such a scheme, it is quite possible to continue to fulfil the Moldovagaz contract with Gazprom to supply gas to the left bank and receive reverse flows of electricity at non-market prices. However, in order to reach the point of entry into Moldova, the gas must first pass through the TurkStream, which is likely to be fully contracted for the entire coming winter. In addition, there are technical limitations for transporting the required volumes at the border between Turkey and Bulgaria. The costs in this case will increase significantly, and there are enough people who want to get access to this pipe without us. Even the mere fact that transit through Ukraine will cease will lead to an increase in stock exchange quotations, not to mention the market volatility that will occur at the stage of organizing supplies in the new conditions. At the same time, one cannot say that costs will not increase even if the current route is retained. Last week, the Ukrainian regulator decided to double the cost of transit from 2025 to 10.3 euros per thousand cubic meters for entry and 14.6-15.8 euros for exit from its GTS. These increased tariffs do not apply to the connections with Russia at Sudzha and Sohranivka and are intended to compensate for the potential absence of Russian transit. Although Kyiv was relying on it and specifically stipulated the possibility of revising the new tariffs, as well as applying special rates for Russian or Azeri gas. The military factor also implies risks due to Russian strikes on Ukraine’s energy infrastructure, including those geographically close to Moldova and Romania. The obvious attention of the Russian military to this area in the last week shows its readiness to break the established status quo, under which the territory of our countries remained an important transit link supporting the functionality of Ukraine’s energy system. If the Ukrainian infrastructure, which receives electricity flows from the western direction, is disabled, the importance of the energy hub represented by the MoldGRES for Kyiv will sharply decrease, and, consequently, the interest in stable gas supplies to the left bank. Of course, it is possible to assume that the decrease in the level of synchronization of the energy systems of Moldova and Romania with Ukraine will not lead to retaliatory actions on gas transit, but the physical isolation from the European ENTSO-E system threatens obvious radical steps of our neighbors. The Odesa administration’s irritation at the refusal of the MGRES to provide emergency assistance in the required volume is only the first signal. For now, we are still far from such apocalyptic scenarios, but the dynamics of the events of the last week are causing serious concern for the coming two months before the inauguration of the new US President with his peace-loving attitude. The growing military and political confrontation between global players also contribute to mutual economic jabs. The other day, six months after Washington imposed sanctions on Russian nuclear fuel suppliers, Russia imposed retaliatory restrictions on enriched uranium exports to the United States. A few days earlier, Gazprom notified Austria that it would stop supplying its long-term partner OMV. The formal reason for this was the decision of the International Chamber of Commerce on the contract dispute between the companies to pay 230 million euros with interest and legal costs. Although Gazprom could have continued supplying gas and the Austrian partner would have taken this amount into account in the next payments, but the principled stand is much more important now. Gas transit through Ukraine has not changed quantitatively since then, but Austrian volumes are being utilized by Hungary and Slovakia and are probably accumulated in case of force majeure. Of course, there are ways out of the deadlock in energy relations between Russia and Europe, which is already visible to the naked eye. Even if Ukraine is finally excluded from all the equations of such cooperation, one of the strings of Nord Stream, which leads directly to Germany, remains intact. Given the publications in the German media about the investigation into the pipeline sabotage and its consequences for Germany, it is possible that one of the topics of the recent conversation between the leaders of Germany and Russia was the possible use of this pipeline, which may happen if there is a prevailing economic interest and favorable political factors. This means that the main international actors will still find a way to defend national interests and ensure stability for the population even in the most negative scenarios. But we, Moldovans, will be the last to be cared about in such a case.