Moldova’s Gas Futures

Critical Questions by Daniel F. Runde, Leah Kieff, andThomas Bryja

Published September 9, 2024

Until 2022, Moldova received all its gas from Russia and the vast majority of its electricity from a power plant in Moldova's breakaway Transnistria region, which is still entirely supplied by Russian gas. This arrangement gave Russia an annual opportunity to seek Moldovan concessions or suffer the consequences through gas prices and the volume of gas supplied. But in the fall of 2022, Moldova broke its full-scale dependence on Russian gas, and as of late 2023, none of Moldova's gas was imported from Russia.

This gas supply diversification is only the first step in Moldova's energy independence. This does not change the complex ownership structure of Moldova's gas industry-which still leaves Russia with majority control over Moldovan gas infrastructure-nor does it solve the complexities of Transnistria's role in Moldova's energy picture. But the ongoing evolution and stability of this sector is of key importance to Moldova's overall growth trajectory.

Q1: What is the history of Moldovan gas supply in the post-Soviet era?

A1: Between Moldovan independence in 1992 and 2022, the majority share of Moldovan gas came from Russia. Within the Moldovan gas industry, there have historically been three primary issues. The first was the pricing model and its flexibility, as well as the commitment to supply-all of which Russia would vary and adjust as geopolitical leverage against Moldova. The second issue is the debt that Chisinau supposedly owed and the repayment schedule, both of which are contested. The third main issue revolves around sectoral restructuring, including Moldova's commitment to unbundling under the European Union's Third Energy Package.

Moldova's rapid diversification of its gas sector since 2022 has alleviated some of the challenges regarding supply. But while none of Chisinau's gas is imported from Russia, the entirety of Transnistria's gas is still being provided by Russia and has also been delivered free of charge for the last 15 years. The cost of this "free" gas, worth approximately $9 billion, is then billed to Moldova's state-owned gas company, Moldovagaz.

The "free" gas costs comprise one of the two streams of alleged debts that Moldova allegedly owes to Russia. The second stream of debts consists of money Moldovagaz owes Russia for gas provided to the rest of Moldova (not including Transnistria). A 2023 review was conducted on this second stream, finding that the Moldovan government owes approximately $8.6 million, as opposed to the $709.0 million that Russia alleged. Of note, Gazprom did not offer a single document in support of this financial review. (Gazprom is Russia's state-owned gas company that also has ownership in Moldova's largest gas company, Moldovagaz, which will be discussed further in this piece.) Russia has said that they will contest this review, which does not include the debts Russia alleges Chisinau owes for gas provided to Transnistria. Resolutions of these debts are one of the complicating factors in Moldova's progress to reform its gas sector, as the government has agreed not to proceed with unbundling until the debt is settled.

Q2:How does Transnistria fit into Moldova's gas supply picture?

A2: As mentioned, Transnistria has long received subsidized gas from Russia. The Transnistrian government relies on the revenue from sales of this gas for the region's budget, and business models throughout Transnistria are predicated on below-market prices on gas. It is also notable that Moldova's largest power plant sits within Transnistria and is still fueled by Russian gas. Historically, all Moldovan gas and electrical lines ran through Transnistria, as before its independence, Moldova was essentially reliant on the east. Even if Moldova can supply all of its electricity needs from the west, not purchasing Transnistrian electricity could severely impact the Transnistrian economy, potentially leading to a collapse.

In December 2024, when the Russian contract with Ukraine to transport gas via pipelines in Ukrainian territory expires, it is unclear how Russian gas will reach Transnistria. There are alternative routes available, but it remains to be seen if Russia will take these alternatives. It is also unclear who will foot the bill for this gas, including transit fees and other costs associated with the gas delivery.

If Transnistria were to no longer receive free or significantly subsidized Russian gas, there would likely be bankruptcies of Transnistrian businesses and a collapse of government services. It is in neither Chisinau's nor Transnistria's interests to get into a back-and-forth tit for tat on energy, which would potentially lead to a humanitarian crisis in Transnistria. Transnistria should remain a part of the planning for energy sector developments broadly to ensure that these reforms not only support those living in Transnistria now but also that the reforms are structured to support broader reintegration efforts.

Q3: Now that Chisinau imports its gas entirely from non-Russian sources, what are the open questions regarding Gazprom?

A3: During the mid-1990s, the Moldovan gas industry was privatized, involving a number of questionable and likely corrupt maneuvers. This led to Russia's state-owned Gazprom having a 50 percent share in Moldovagaz. Moldovagaz's remaining ownership is split, with 35 percent owned by the Moldovan government in Chisinau and 15 percent owned by the government in Tiraspol, the capital of Transnistria. Russia's ownership stake, via Gazprom, provides another geopolitical tool to wield over Moldova, not to mention another avenue from which to profit from Moldova's gas sector. Adding to the complexity, Transnistria's gas is supplied by , a Moldovagaz subsidiary. This company the gas-related infrastructure in Transnistria.

Moldova has also diversified its gas supply, reducing reliance on Moldovagaz and, therefore, Gazprom's ownership stake in Moldovagaz. This is now supplied via Energocom, another Moldovan state-owned company that is also a public electricity trader. While Energocom's supply ended Gazprom's ownership control of that piece of Moldova's gas business, it has not necessarily created an environment that incentivizes private sector participation. For example, recent supplier contracting negotiations have been opaque, with no public disclosure of volume or pricing. A state-owned entity conducting business in this manner lacks both accountability to the Moldovan taxpayers and appeal for private sector engagement in the short or long term.

Q4: What options does Moldova have in terms of gas imports?

A4: As Chisinau diversified its gas imports, eroding Gazprom's monopoly, Moldova made strides in securing its gas. Of note, while removing Gazprom's monopoly helps lessen Moscow's political leverage in the process, doing so has resulted in higher prices, negatively impacting Moldovan businesses and the country's economy overall. But even with these challenges, continuing to import gas from Russia is still the least preferable of the options available to Moldova. This choice presents many challenges, including an unstable gas supply and pricing, as well as Russian leverage over and manipulation of Moldova.

When Ukraine's contract to transport Russian gas to Europe expires in December 2024, an option for Moldova to receive Russian gas will be to leverage TurkStream, a pipeline running from Russia to Turkey, and the Trans-Balkan pipeline, which runs between Turkey and Ukraine. Supplying non-Russian gas from Ukraine also presents challenges, as the gas would need to pass through Transnistria. While this option might offer stable prices and supply, Moldova would remain dependent on both Transnistrian infrastructure and a secure Ukraine.

Moldova's most advantageous approach would be to significantly diversify its gas import infrastructure and routes. The country has already taken steps in this direction with the Iasi-Ungheni pipeline, which supplies gas from Romania through a reverse flow of the Trans-Balkan pipeline, and by securing agreements to transport gas through Bulgaria's network. Additionally, Moldova has joined the Vertical Corridor initiative, established in 2016 by Bulgaria, Greece, Hungary, and Romania. This initiative would enable the import of natural gas and liquefied natural gas (LNG) from Greece, as well as Caspian gas through the Southern Gas Corridor. The participating countries have agreed to collaborate to build the necessary infrastructure for this project. By entering the global LNG market, Moldova could import LNG from various countries around the world, including the United States, via Greece. Moldova also has the option to import gas from Azerbaijan or Turkey by building extensions from the Trans-Anatolian pipeline.

Moldova has numerous opportunities to diversify its gas sector, all of which enhance the country's energy security. However, these are large-scale projects, and some, such as importing LNG or connecting to the Trans-Anatolian pipeline, require the construction of costly infrastructure over long distances. Completing these initiatives would take years.

Q5: What is the likely evolution of the gas sectors in Moldova over the next three to five years?

A5: Following multiple gas crises marked by high prices and supply disruptions, Chisinau is determined to avoid dependence on a single gas source and will likely continue to invest in infrastructure development. While energy is often viewed in terms of source and destination, transit mechanisms, as discussed above, play a critical role in geopolitics, especially for Moldova. While Moldova has made strides in supply diversification, as well as in its gas infrastructure, this is not enough. Moldova should pursue reforms to liberalize the market, increase competition, and find ways to attract diverse private sector investments. This will be important as Moldova continues its pathway to EU accession, including the required unbundling, discussed below.

Moldova is also expected to continue its work on improving energy efficiency. Many buildings currently rely on outdated technologies for district heating. With the support of international partners like the United States, Moldova will continue developing the country's power grid and supporting foreign investments in the energy sector, especially in renewable energy sources. For example, the U.S. Agency for International Development and the U.S. Department of State have been working on projects funded through $300 million in support for energy sector development.

However, the success of energy sector reforms and developments will depend on the outcomes of the October presidential election and next year's parliamentary elections in Moldova, as well as Russia's ongoing war in Ukraine. If pro-Russian officials come into power in Moldova, Moldova's gas supply may revert to dependency on Gazprom. Conversely, if the war in Ukraine escalates, disrupting existing pipelines or making gas transit via Ukraine unfeasible, Moldova will need to expedite its diversification efforts. Should the war de-escalate, Moldova and Ukraine could not just continue their current energy collaboration but expand their efforts moving forward.

Q6: What role does Moldova's EU accession effort play in the energy sector?

A6: In December 2023, the European Union opened formal accession talks for Moldova, following candidate status in 2022. But Moldova's history of collaboration with the European Union on energy is far longer. In 2010, Moldova became a member of the Energy Community, a grouping of EU and non-EU members in southeastern Europe who have committed to adopting parts of EU energy-related legislation for implementation in their countries. As a part of this membership, Moldova agreed to reform its energy sector to comply with the European Union's anti-trust laws, including restructuring its gas sector.

The European Union requires unbundling of the gas sector, including separation of supply and generation from transmission operators. As currently structured, Moldovagaz controls almost the entirety of the gas business, including infrastructure. Furthermore, Moldova has made other progress in gas sector reforms, including adopting regulation around network codes and market rules. But these are just some of the reforms needed on the pathway to a free and fair energy sector in Moldova that complies with EU legal and regulatory requirements.

While the process for completing reforms needed for EU accession is ongoing, the European Union's support for Moldova's energy sector has remained steady. During Moldova's 2022 gas crisis, not only did the European Union provide financial assistance to aid Moldova in keeping the lights on, but it also publicly called out Russia's use of energy as a geopolitical tool. EU economic aid for Moldova's energy sector has also included grant funding to support individuals making improvements in their homes to increase energy efficiency, as well as ongoing energy subsidies for economically disadvantaged populations. This is important to ensure that these populations can weather the changes in Moldova's energy sector.

Q7: Why does Moldovan energy matter to U.S. foreign policy?

A7: Russia has long used energy as a coercive tool, especially against post-Soviet states, in particular targeting Belarus, Georgia, Moldova, and Ukraine. While Russian efforts to leverage energy flows as a coercive tool across the post-Soviet world often yield acquiescence in the short term, in the longer term it pushes clients to diversify their supply. Moldova's tempestuous history with Russia-as played out in its unreliable supply and pricing of energy, among other avenues-ultimately pushed Moldova to diversify its gas suppliers.

But the current structure of Moldova's gas industry leaves Moldova locked into purchasing electricity from its own separatist region that relies on Russian-subsidized gas, with Gazprom controlling Moldova's gas infrastructure. Without true energy independence from Russia, Moscow's ability to cut off heat in Chisinau or provoke a crisis in Transnistria will remain a geopolitical tool for pressuring or destabilizing Moldova. Moldova's stability matters to Europe not just because of its geographic location next to Ukraine and Romania's eastern border, which is a vulnerable and important strategic location for the NATO alliance, but also because an economically successful and democratic Moldova benefits all of Europe. A stable Europe-home to many key U.S. allies and partners-is critically important to the United States as well.

Daniel F. Runde is a senior vice president, William A. Schreyer Chair, and director of the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Leah Kieff is a senior associate (non-resident) with the Project on Prosperity and Development at CSIS. Thomas Bryja is a program coordinator with the Project on Prosperity and Development at CSIS.

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