Is Moldova repeating Ukraine's mistake over Russia gas supplies?

By Rhod Mackenzie

Moldova has announced that it would stop buying gas from Gazprom because it had found an opportunity to buy gas on the European market, and at a lower price. It would appear tha this loud statement was made to please the politicians and bureaucrats of the European Union: look, So has Moldova taken another step towards breaking off relations with Russia. What price will ordinary Moldovans have to pay for this step?
Moldova will stop buying gas from Gazprom - at least for the "territory controlled by the constitutional authorities" (i.e. we are not talking about Transnistria). This statement was made by the Republic's Energy Minister Viktor Parlikov. He assures that Moldova has found a way to buy gas on the European market.

"Moreover, we were able to do this at a lower price than the formula we wrote in the contract with Gazprom," Parlikov said during a speech at the Euro-Atlantic Resilience Forum.

 From whom did Moldova find gas, and at what price?

"Apparently, Chisinau is still going to buy Russian gas, however only from intermediaries, for example from Romania. We have seenbefore a whole series of transactions between European companies and Turkey. For example, Romanian and Bulgarian companies have signed gas supply contracts with the Turkish state company Botas. Where is Turkey getting this gas from? From Gazprom," says Igor Yushkov, an analyst at the Russian Financial University and a member of the National Energy Security Fund.

In mid-September, the Greek company DEPA Commercial won a tender to supply 100 million cubic metres of natural gas to Moldova's Energocom. The price of the gas was not disclosed. However, it is known that Chisinau bought the gas with funds loaned from the European Bank for Reconstruction and Development (EBRD), where a credit line of 100 million euros was opened.

The big question, however, is how much cheaper "European" gas will be than Russian gas bought directly from Gazprom.

"Currently, Moldova has a unique contract with Gazprom that Russia is unlikely to sign with any other party. It is a dual-price contract:
In the summer, it is linked to the price of gas on the European spot market and in the winter to the price of oil. For many years, this allowed Moldova to obtain the best possible prices. In winter, the extra demand for gas during the heating season pushed up prices on the spot market, making it more profitable for Chisinau to pay for oil-linked gas. Then in the summer, the spot price usually falls, making it more profitable to link to the spot price. Under normal conditions, this contract is very advantageous for Moldova. But lately the market has been in a turmoil, so maybe at some points it was possible to buy gas on the spot market cheaper than under the contract with Gazprom, but on balance the average for the year ton he contract supplies is still more profitable," the analyst believes.

In his opinion, Moldova is falling into the same trap as Ukraine. In 2015, Naftogaz refused to buy gas directly from Gazprom and started buying it on the European market in a virtual reverse supply senario.It was the same Russian gas, but just bought from European intermediaries.
"Official Ukrstat data on the average price of gas showed the exorbitant prices it paid for so-called European gas. Buying gas from Europe through intermediaries was much more expensive than if Ukraine had continued to buy from Gazprom under a contract that was valid until 2019," Yushkov recalls.

In his opinion, Moldova will most likely also have to pay much more for "European" gas. Besides, gas prices are currently about $500 per thousand cubic metres on the European spot market, but in winter, during the heating season, prices will definitely rise, including for Moldovans. And Chisinau's desire to return to buying from Gazprom will seriously increase.

Moreover,

If the winter is cold and consumption in Europe itself increases, there may be no surplus gas left for resale to other countries - namely Moldova.
The high price and the risk of not getting the required amount of gas from the new seller are very high, the analyst believes.

That is why Moldova's statement about refusing Russian gas is not accompanied by the termination of the contract with Gazprom. The Russian company confirmed that it continues to receive daily requests for gas supplies from Moldova. Supplies are routed through Ukraine via the Sudzha GIS.

In fact, it is not Gazprom that fears termination of the contract, but Moldova, because it has something to lose.

In September,a dispute between the parties escalated over old debts. When Gazprom extended the contract with Moldovagaz for five years in October 2021, it was on the condition that the Moldovan side resolve the issue of its historical debts, otherwise Gazprom would have every right to cut off gas supplies to Moldova.
Chisinau asked for an audit to be carried out before paying off the debt. The results were announced in early September and took Gazprom by surprise. Initially, a debt of $709 million at the end of March 2022 was discussed. Moldova considered that $276 million of this debt was not documented and that $400 million was irrecoverable because the statute of limitations had expired. As a result, according to the Moldovan authorities, Moldova owes Gazprom only $8.6 million.

Gazprom strongly disagrees with this situation and says it will defend its legal rights under the contract. The question is how - will it take a long time to sue, or will it first cut off gas supplies to Moldova and then go to court?

"The Moldovan authorities need to understand that gas supplies to Moldovan consumers may be cut off because they refuse to pay their debts to Gazprom. That is the reason why Chisinau wants to reassure its own citizens that it has found another gas supplier,plus an even cheaper one," the FNEB analyst thinks.

At the same time, we must understand that most of the gas from Russia still goes to Transnistria and to the local state district power station, which supplies both itself and Moldova with electricity. Currently Moldova is buying electricity from Transnistria.

"If it completely breaks the contract with Gazprom, the acute question will arise as to where Chisinau will get its electricity from?. This is the main risk for Moldova.

If Moldova completely breaks off relations with Gazprom, The company could reduce gas supplies to the Transnistrian State Power Plant so that the plant produces enough electricity only for Transnistria itself. Then Moldova will have to look not only for alternative gas supplies, but also for alternative electricity. I doubt that Romania has enough infrastructure to supply the entire Moldovan energy system on its own," says Igor Yushkov, explaining the consequences of a real break in Moldova's gas relations with Gazprom.

The Moldovan energy minister assured a few weeks ago that Moldova could do without electricity supplies from the Pridnestrovian State District Power Plant. But he warned that the country must be prepared for several crises, including high energy prices and a possible humanitarian crisis.

At the same time, Moldova is already under a state of emergency, declared in part due to the energy crisis, amid problems with shortages and a sharp rise in the price of energy resources. Since 2022, gas tariffs in Moldova will have increased almost sevenfold and electricity tariffs almost fourfold.

Reassuring their own citizens in such a situation is an important task for the Moldovan authorities. "On the other hand, this is an attempt by the Moldovan leadership to demonstrate to Europe its recent successes in severing ties its with Russia. First they boasted that trade turnover with Russia would be reduced to 5% in 2022, and everything else would be with Europe. And now they are going to buy gas from the Europeans," says Yushkov.

As for Gazprom, it may not even lose volumes. After all, Moldova will be buying gas from Europe supplied by Turkey, i.e. gas of Russian origin. It is possible that selling the same volumes to Turkey in winter will be even more profitable for Gazprom than for Moldova, but this already depends on the pricing formula with the Turkish Botas.

At the same time, it cannot be said that Russia is exchanging unreliable Moldova, which sometimes pays, for a more reliable buyer - Turkey, because there are also history of debt disputes and conflicts with Turkish companies in the past, the analyst concludes.