Gas war: can Ukraine survive without Russian gas?

Газовая война: может ли Украина выжить без транзита российского газа?

This week in Brussels held a trilateral meeting of representatives of Ukraine, Russia and the European Union, where the parties tried to agree on the future of Russian gas transit to European countries through Ukrainian territory after 2019 – that’s when the deadline of the current contract.

However, expect an early decision on this issue is not necessary, the leaders of the two warring States remains adamant. And in the light of new circumstances – the victory of “Naftogaz Ukraine” to the Stockholm arbitration court in a dispute against the Russian “Gazprom”, as well as the desperate attempts of the Kremlin to finish the construction “Nord stream -2”, and “Turkish stream” to bypass Ukraine – the rates for each of the parties to agree to grow and is becoming increasingly difficult. What could be a new contract on the transit of Russian gas to Europe, and who will ultimately pay for losses from the termination of deliveries of “blue fuel” through Ukraine, to understand “Economic news”.

Someone who is an enemy and a friend?

The relations between the Ukrainian Naftogaz and Russian Gazprom long since moved exclusively in the plane of trials. The Ukrainian side for more than three years do not buy gas from the aggressor. The latter, in turn, refuses to pay more than $ 2 billion. by lost in the Stockholm arbitration claim and all the forces of aims at the construction of bypass pipelines, which should significantly reduce the transit of gas through Ukrainian GTS.

Recall the “Turkish stream” with a length of about 1100 km will consist of two lines with a total capacity of 31.5 billion m3 of gas per year. The first line is designed to supply gas to Turkish consumers, the other for the gas supply countries in southern and South-Eastern Europe. In 2019 it is planned to complete the construction of the receiving terminal and the onshore section in Turkey. Also “Gazprom” is working on the preparation of transportation routes outside of Turkey. However, the special concern of Kiev and several European countries causing the construction of “Nord stream – 2”, after which implementation will be built two threads of a gas pipeline under the Baltic sea from Russia to Germany. The capacity of the pipeline will be around 55 billion cubic meters of gas per year.

Against the construction of the gas pipeline “Nord stream-2” also stands Washington. Earlier, the US Secretary of state Mike Pompeo during a meeting with the Minister of foreign Affairs of Ukraine Pavlo Klimkin said that “Nord stream-2” undermines the “economic and strategic security” of Ukraine. American President Donald trump has repeatedly criticized the leadership of Germany, that they are “hostages” of the Kremlin. The White house demanded from the participants to withdraw from the project, threatening with sanctions for those who do not. In return USA offer European partners private project involving the construction of Europe’s regasification terminals to supply of American liquefied natural gas. However, in Berlin, assured that “Nord stream – 2” is purely commercial in nature and do not intend to abandon it, even while insisting on the preservation of transit through the territory of Ukraine.

While the construction of the pipeline has somewhat stalled due to the position of Washington, but, sadly for Ukraine, its operation will still be completed, albeit late. It is expected that this will occur by year 2021-2022. The major delay is in the construction of the ground infrastructure. So Russia, while maintaining the current level of gas exports to Europe after 2019, the end of the current contract, without the Ukrainian route is not necessary. The intrigue of the future relations of Ukraine and Russia on this issue remains.

Fruitless negotiations

The current negotiations in Brussels that lasted a little over an hour instead of the planned three, until came to nothing. The Russian side proposes to extend 2009 contract for gas transit after 2019 without any consultation. “Miller three times placed emphasis on the fact that they are willing to extend the existing contract. He said that they can extend without any expert advice… Just take these contracts – and forward”, – said the foreign Minister Pavlo Klimkin after talks. Such a proposal, he said, means that Russia absolutely does not take into account that Ukrainian legislation since 2009, has undergone significant changes and today is adapted to the European. In addition, “Gazprom” continues to insist on the peaceful settlement of the question of payment of the “Naftogaz” $2, 56 billion by the decision of the Stockholm arbitration in the dispute on transit contract for Ukraine is unacceptable.

“We are open to any options, but if they meet the decision of Stockholm,” – said in turn the head of “Naftogaz Ukraine” Andriy KOBOLEV. He also stressed that the company is ready to consider future agreements only upon full compliance with EU legislation that was implemented in Ukraine. According to KOBOLEV, the European Commission supported the position regarding the implementation of the arbitration award and compliance of new contracts to the current legislation of Ukraine. Actions “Gazprom” KOBOLEV regarded as an attempt to delay negotiations for political reasons.

At the same time, according to the Vice-President of the European Commission, the European Commissioner for energy maroš Šefčovič, the new contract for the supply of Russian gas through the territory of Ukraine should be concluded for a period over 10 years. “Volumes must be commercially viable, because we need to attract investors in the organization and upgrade of the Ukrainian GTS. And we would like it to be a European company with high reputation”, – he said. The Vice President also stressed that the new contract should be based on the full implementation of European energy legislation, “that he was the same as the contract “Gazprom” with European companies”. “I hope that the long-term transit through Ukraine will be ensured,” added Sefcovic.

In turn, Russian energy Minister Alexander Novak said that Russia is primarily interested in the commercial attractiveness of the project. “The transit contract will be discussed, but the underlying condition is its commercial appeal. That is, the creation of such economic conditions that would be competitive in relation to other areas besides the “Nord stream”, “Turkish stream”, said the Minister.

What are the losses from the transit?

Now for the year Ukraine is pumping about 90 billion m3 of Russian gas, for which he receives about $ 3 billion. profit. The power of our gas transportation system on the Western border is 180 billion m3 of gas per year. If Russia implements both of bypass gas pipeline “Nord stream-2” and “Turkish stream”, the transit of Russian gas will be reduced significantly. Therefore, experts advise now is the time to develop a backup “plan B”.

“When will the first branch of the “Turkish stream”, and it is about 15 billion cubic meters, the transit through Ukraine will be about 60 billion cubic meters of gas per year. “Nord stream – 2”, even if it will be completed by this time will not be able to fully engage in work due to delays in the construction of the German pipeline “Eugal” in Germany. Accordingly, the gas that will come on the “Nord stream -2″ will have nowhere to send next. That is, the transit through Ukraine in 2020 will be around 60 billion. cubic meters of gas a year, depending on the situation on the European market, weather conditions, etc formalisation of this transit, logically, should be the subject of negotiations,” – said the expert on energy issues Valentin Zemlyansky.

According to him, the best-case scenario after starting the “Nord stream-2” which is regarded by the expert community, it is pumping about 40 billion m3 of gas per year through Ukraine. “You have to understand that gas is not evenly throughout the year. That is, there are peaks, such as winter, when you need to pump more. There are downs. Is the Ukrainian system of underground gas storage facilities, which are suitable for such peaks. This will be a subject of discussion and this volume can in principle be stored on the Ukrainian territory after going into operation, “Nord stream 2″. But without a settlement, or at least reduce the degree of relations between Kiev and Moscow, afraid that such arrangements will be difficult,” he added.

What is positive for Ukraine?

According to ex-Deputy of the state Duma Ilya Ponomarev, to maintain transit through Ukraine it is still necessary for technical reasons. “All of these Maritime flows do not have underground gas storage facilities. They power is less than the transit through Ukraine. Gas consumption is seasonal and you need somewhere to keep surplus at a time when consumption is less. Therefore, Ukraine’s GTS will still have to use it,” he said. According to the politician, from the start of the “Nord stream – 2” and “Turkish stream” for Ukraine is a positive thing, as it will not work the script, which was used in previous years with “”twisting the valve” when all of Europe was sitting without gas and kept pushing for Ukraine to negotiate with Russia”. “This monopoly will be gone. This consolidated pressure on Ukraine too. Rather, it does not take into account Gazprom itself, relying on the fact that Ukraine at any cost necessary to agree, trying to force Kiev to voluntarily give up the win in the Stockholm arbitration. But, the issue price of winning in arbitration and how many will be lost in transit is of comparable magnitude. In this situation Ukraine will not kneel to negotiate,” – said Ponomarev.

He also drew attention to the fact that Ukrainian consumers pay for gas, collectively, about $ 8 billion. a year. at the time when payment for the transit of Russian gas is about $ 3 billion. “As a result of the construction of “Nord stream-2” and “Turkish stream” Ukraine may lose $ 2 billion. profit. At the moment of increase of tariffs for gas for Ukrainians already cover the losses that Ukraine may suffer from overlapping of the transit flow. Therefore, this issue ceased to be critical for the Ukrainian economy”, – he added. The politician predicts that this year will go endless negotiations, which came to nothing lead. “Will negotiate in the last days and, most likely, will agree about some workaround. For example, on a quarterly basis will prolong the conditions that existed before, endlessly playing each other’s nerves”, he added.

We are not afraid “grey wolf”

In turn, the expert on energy issues, Maria Yakovleva believes that to conclude an agreement on the transit of Russian gas and do not need. “If the contract is concluded, it will be the biggest strategic mistake of the Ukrainian authorities. Because to have a single customer for the transit of any business, not to mention the energy national aspect, is unacceptable. Besides, it is necessary to remind that the customer is a country, which had coveted the Ukrainian territory. It is generally unacceptable position. Question – why did the authorities allow this?”, said “AL” expert.

According to her, it is necessary to invite the European companies that buy gas in Russia and to provide them with economically favorable conditions for the transit period of 5-10 years, as it did our neighbors from Slovakia, conducted a public auction and sell power at the border it is the companies that buy gas from Gazprom and transportyou in their countries. “Today, the transit through “Nord stream – 1″ is $ 20. per thousand m3. Unless Ukraine can offer $ 16. per thousand m3.? And then download our GTS at 40 billion m3, and 100-110 billion m3 of gas per year. Also can make economically attractive and competitive proposal for storage of gas in storage. And we have a huge domestic market, today we import approximately 10 billion m3 per year”, – the expert reminded. She is convinced that Ukraine urgently needs effective and reliable gas market to companies that buy gas from Gazprom was beneficial to transport through the Ukrainian GTS. “European companies are interested in two components. First – price, second – the security of supply. And the first and second Ukraine can provide. Why are we not doing? All actions of the current government are directed against the interests of Ukraine”, – said Yakovlev. She is convinced that Ukrainian GTS has great potential, but in order to implement it, you need to separate your company “Ukrtransgaz” of Naftogaz, in accordance with the requirements of the Third energy package, which the latter strongly opposes.

She also denied that the Ukrainian GTS might sooner or later stop its work for technical reasons due to lack of funding for its modernization. “These things speaks only Russian propaganda. If I didn’t invest in the modernization of the Ukrainian GTS, we would have witnessed the accident. During this time we have not seen even a single emergency situation. This suggests that the funds were invested. Annually to upgrade the company spends huge funds for this purpose. View financial accountability. Therefore, it is an outright lie about the Ukrainian GTS. Someone really wants that Ukraine lost the opportunity for a normal future. Because of the Ukrainian GTS can be the driving force of huge transformations, as the income from the transit of emergency – economic, political, and geopolitical” she concluded.

Meanwhile, following a trilateral meeting at Ministerial level on this issue is expected in may 2019. It is expected that by this time, experts should work out the details of the future contract on the transit of Russian gas through Ukrainian territory.