[LINK] "How Ukraine Weaned Itself Off Russian Gas"

[rfmcdonald]

Bloomberg View's Leonid Bershidsky describes how a combination of Ukrainian changes (industrial collapse, substantially) and changes in the European Union have helped Ukraine diversify its gas supplies away from Russia.

Not so long ago, Russia could bend Ukraine to its will by threatening to cut off natural gas supplies. Now, Russia is offering discounts, but Ukraine is not interested because it's getting plenty of gas in Europe. This change reflects developments in the European gas market that don't augur well for one of Russia's biggest sources of export revenue.

The decline in Ukraine's imports of Russian gas is partly the result of economic stagnation under former President Viktor Yanukovych, a huge drop in output after the 2014 "Revolution of Dignity" and Russia's annexation of Crimea. Ukraine's gross domestic product has shrunk around 19 percent since 2013, and its industrial sector needs less fuel.

That, however, is not the most important reason for the decline in Ukrainian imports. The government is determined to end its dependence on Russia as the two countries are in a semi-official state of war. More than once, Russian threats to stop supplies or raise prices as winter approached forced Ukrainian governments to accept political concessions that slowed the country's drift toward the European Union. In response, Ukraine sought "reverse supplies" from Slovakia in 2014.

It was a good year to experiment: The winter of 2014 was warm in Europe, and there was a surfeit of gas. In Slovakia, the gas was Russian, delivered by the state-owned monopoly Gazprom through the Ukrainian pipeline system. Gazprom had tried to ban resale, but those conditions were in violation of European rules. In April 2015, the European Commission cited such stipulations as an example of Gazprom's abuse of its dominance in eastern and central European gas markets. Gazprom, which is trying to avoid steep fines and arrive at a settlement with the commission, could do nothing to prevent its customers from supplying Ukraine.