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Will the U.S And The European Union Get Sucked Into the Russian-Ukrainian Natural Gas Conflict?

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The internal conflicts now occurring inside the United States are diverting attention away from a pesky problem — Russia’s belligerence toward Ukraine and how it is using its leverage to squeeze financially its former ally.

The two countries have been going at it since 2006, although the dispute reached new heights in 2014 when Russia annexed the former Ukrainian territory of Crimea and then cut off natural gas supplies to Ukraine in the dead of winter. Since then, there has been skirmishes on the Black Sea that holds a lot of natural gas while the global community decides under what terms Russia would be permitted to rejoin the group of highly industrialized nations. 

Russia is using its energy clout to win friends. Now, though, it is in the midst of bypassing Ukraine altogether with its Nord Stream 2 Pipeline that is traveling under the Baltic Sea and will be delivering natural gas to Europe. The $11 billion pipeline would let Russia transport 55 billion cubic meters of natural gas to Germany. Its completion is close-at-hand.

"Russia needs to remove transit from Ukraine for a very simple reason: because transit makes full-scale military aggression against Ukraine a very costly exercise," Andriy Kobolyev, the chief executive of the Ukrainian state oil and gas company, Naftogaz, told DW.com. His point is that tensions are so high right now between the two countries and conflict is always imminent — a war that would "cost the Russian state a lot, reputationally and financially.”

While Ukraine is weaning itself from Russian-supplied natural gas, it has remained dependent on the revenues it gets from Russia that uses its land to send natural gas to Europe: $3 billion. Naftogaz' Kobolyev says that Russia is trying to shortchange Ukraine, forcing it to try and seize Russian gas assets.

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Staying Warm

Beyond the financial hit, Ukraine is pressured to get creative when it comes to stockpiling enough natural gas to keep warm: It must increase the level of its natural gas reserves by 18% from a year ago to avoid getting socked this winter. It imports 80% of its gas from Eastern Europe, although the United States seeks to help it develop its own resources.

"Russia's war against Ukraine has still not been resolved, despite all international efforts, including by Germany,” said Jörg Forbrig of the German Marshall Fund of the United States, in an interview with DW.com. “The last thing Berlin needs now is for this conflict to spread to the energy sector and for Europe to be directly affected by it.”

Russia supplies one-third of Europe’s natural gas needs, according to the U.S. Energy Information Administration. It adds that other countries, such as Finland and those in southeast Europe, get almost all of their natural gas from Russia. State-controlled Russian energy giant Gazprom, in fact, has increased its natural gas exports to Europe by 6.2%, it said in a release, noting that the Nord Stream 2 pipeline will improve the reliability of supplies as well as the overall economy of the European Union.

Regardless, Europe has some serious concerns about Russia’s reliability. According to Gas Infrastructure Europe, the continent is storing more natural gas in the summer when there is less demand for it so that it will ensure that there is enough of it in the winter: it’s now 80% full compared to 58% a year earlier.

To improve its lot, Ukraine moved this year to auction off acreage within the Black Sea so that it could be developed. It’s a site near the port city of Odessa. According to the Washington Times, the bidders include two U.S. companies: Trident Acquisitions and Frontera Resources as well as a Ukrainian company, Ukrnefteburenie, and an Azerbaijani one, the Azerbaijani Caspian Drilling Co.

Ukraine has previously signed deals with Chevron Corp. and Royal Dutch Shell to invest as much as $10 billion into shale gas development in the western part of the country. Beyond helping Ukraine develop its natural gas basins, American liquefied natural gas could potentially get exported to Europe and thus become a competitor to Russian-piped gas.

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No Laughing Matter

In April 2019, a 41-year-old Ukrainian comedian named Volodymyr Zelensky defeated the incumbent incumbent Petro Poroshenko to win the presidency there. A central premise behind that election was Poroshenko’s inability to resolve the conflicts with Russia as well as his alleged corruption.

"The role of the United States in diversifying energy supplies is important to Ukraine and Europe as a whole,” says Oleksandr Danyliuk, who is an adviser to President Zelensky, per the UNIAN Information Agency. “This reduces political risks and lowers the cost of energy for consumers.”

The conflict between Ukraine and Russia has multiple roots, tied in large part to the ongoing dispute over natural gas and more broadly linked to Ukraine's desire to identify with the West — a move that has led to thousands dead and Russia’s annexation of Crimea. It’s also a position that has led to Russia’s isolation among the world’s most advanced economies.

That tension is manifesting itself right now, with the current government in the United States seeking to bring Russia back into the fold while the leaders of the European Union are setting strict conditions to such terms. Layering Ukraine’s natural gas dispute on top of that just adds fuel to the fire and the ingredients that are necessary to create an endless quagmire.