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Published: Monday March 3, 2014 MYT 8:35:02 PM
Updated: Monday March 3, 2014 MYT 8:35:52 PM

Europe less reliant on Russian gas through Ukraine

LONDON/PRAGUE (Reuters) - A mild winter and improved infrastructure mean Europe is less reliant on Russian natural gas pumped through Ukraine than in past years, easing worries that the escalating crisis in Ukraine could hurt supplies.

Russia is Europe's biggest gas supplier, providing around a quarter of continental demand, which at current daily flows of 270 million cubic metres (mcm) is worth almost $100 million a day. Around a third of Russia's gas is exported through Ukraine.

Fears for the stability of supply to Europe increased over the weekend when Russian forces took control of Ukraine's Crimea region and President Vladimir Putin said he had the right to invade his neighbour to protect Russians there after the overthrow of ally Viktor Yanukovich.

Moscow has in the past cut supplies to Ukraine when negotiating prices with Kiev, causing shortages especially in central Europe, which gets most of its supplies from Russia.

Russia's Gazprom said on Monday that gas transit to Europe via Ukraine was normal, but it warned that it might increase prices for Kiev after the first quarter, raising concerns that gas could be used for political leverage in the crisis.

But analysts said a mild winter across Europe had left storage inventories unusually high, easing the impact of any potential supply cut.

They also said improved gas infrastructure meant much of Russia's supplies could go to western Europe via alternative routes, such as the Nord Stream pipeline, which goes through the Baltic Sea to Germany, or through a pipeline that passes Belarus and Poland and also goes into Germany.

"Low utilisation means Ukraine's gas network is of lesser importance today than in the past," Bernstein Research said on Monday in a research note.

Ukraine's gas transit monopoly Ukrtransgas has also been increasing its gas imports from Russia in recent days.

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After a mild winter, meteorologists expect early spring to bring warmer-than-usual conditions over most of Europe, implying weak gas demand will continue, adding to already high storage levels.

In Central Europe, which relies heavily on Russian supplies and was hard hit by previous cuts, Czech and Slovak inventories are filled between 35 and 45 percent, equivalent to 90 days of demand, and Polish reserves at over 70 percent of capacity.

Austria's inventories are at around 34 percent, and the economy ministry says there is enough gas to meet three months worth of demand.

Hungary's gas stocks are lower, at roughly 22 percent of capacity, but because its inventory facilities are larger in volume, its reserves are still enough to meet almost two months' worth of demand.

In Germany, Europe's biggest gas consumer and Russia's largest customer, inventories are more than 60 percent of capacity, equivalent to around 60 days of demand.

(Additional reporting by Oleg Vukmanovic, Vera Eckert in Frankfurt and Stephen Jewkes in Milan; Editing by Will Waterman)

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