No tran­sit, no cry:

The threats and op­por­tu­ni­ties brought by Gazprom's prob­a­ble ter­mi­na­tion of gas tran­sit through Ukraine af­ter 2019

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

Deal­ing with the ter­mi­na­tion of Rus­sia's gas tran­sit through Ukraine in 2019

While Ukraine is dis­cussing how real or imag­i­nary the vic­tory in the Stock­holm ar­bi­tra­tion court of Naftogaz vs Gazprom is, one ques­tion be­comes more and more rel­e­vant: what will hap­pen in 2020 when the trans­porta­tion of Rus­sian gas through the Ukrainian gas tran­sit sys­tem (GTS) is stopped or re­duced to a min­i­mum? The ex­ist­ing tran­sit con­tracts, the sub­ject of the on­go­ing dis­pute be­tween Ukraine’s Naftogaz and Rus­sia’s Gazprom in Stock­holm, end in 2019. Which is not too far from now. Mean­while, Gazprom CEO Alexey Miller said in an in­ter­view with Reuters on April 25, 2017 that his com­pany does not rule out main­tain­ing cer­tain tran­sit vol­umes through Ukraine af­ter 2019, but they will be lim­ited to a level of around 15 bil­lion m³. The cur­rent amount is 80-85 bil­lion m³. The re­main­ing de­liv­er­ies will be ex­clu­sively for the needs of coun­tries bor­der­ing with Ukraine. The chances of these plans suc­ceed­ing are very high. De­spite nu­mer­ous ob­sta­cles, the sys­tem­atic and per­sis­tent work of Rus­sian lob­by­ists to push al­ter­na­tive en­ergy sup­ply projects in EU coun­tries yields re­sults. While it may be pos­si­ble to put the brakes on Gazprom's in­ten­tions for a few years, stop­ping them com­pletely is un­likely.

There­fore, Ukraine should fo­cus pri­mar­ily on asym­met­ric coun­ter­mea­sures. So that when Rus­sia fi­nally makes its plans re­al­ity and has the tech­ni­cal abil­ity to tran­sit the bulk of or all cur­rent gas to the EU by­pass­ing Ukraine’s GTS, we will be ready and able to min­imise po­ten­tial threats. At least two are loom­ing. Firstly, it will be­come more com­pli­cated to pur­chase gas from European sup­pli­ers and the price will in­crease sig­nif­i­cantly. Un­less ac­tion is not taken, Ukraine will have to trans­port the fuel from dis­tant European hubs fol­low­ing the ter­mi­na­tion or min­imi­sa­tion of gas tran­sit through its GTS in­stead of buy­ing Rus­sian gas on Ukraine's western bor­ders af­ter its trans­fer to European com­pa­nies, as is the case now. Se­condly, tran­sit rev­enues will be lost and it will be more ex­pen­sive to trans­port fuel for do­mes­tic con­sumers us­ing the Ukrainian GTS, as they will have to pay most or all of its op­er­a­tion costs. As a re­sult, in­dus­trial pro­duc­tion may be­come even less com­pet­i­tive com­pared to other coun­tries in the re­gion, in ad­di­tion to higher gas cost for do­mes­tic con­sumers.

SLOWLY BUT SURELY

De­spite the scep­ti­cism and re­sis­tance to the Nord Stream pipe­line, which runs un­der the Baltic Sea di­rectly from Rus­sia to Germany with a ca­pac­ity of 55

bil­lion m³, it was fi­nally built in 2011. Al­beit with sig­nif­i­cant de­lays (con­trary to ini­tial ex­pec­ta­tions), it is now work­ing at al­most full ca­pac­ity. Slowly but surely, Gazprom is push­ing for Nord Stream-2 and a num­ber of pipe­lines in the EU that would en­sure the sup­ply of nat­u­ral gas from the two Nord Streams to var­i­ous European coun­tries. In or­der to by­pass the ob­sta­cles pre­sented by EU reg­u­la­tors, Nord Stream 2 AG and European en­ergy com­pa­nies ENGIE, OMV, Royal Dutch Shell, Uniper and Win­ter­shall signed a fi­nanc­ing agree­ment on April 24, 2017: these five com­pa­nies have com­mit­ted to pro­vid­ing long-term fund­ing amount­ing to 50% of the to­tal project cost (es­ti­mated at €9.5 bil­lion), while Gazprom will re­main the sole share­holder of Nord Stream 2 AG. It is planned that pipe­line con­struc­tion will be­gin in 2018 and be com­pleted by the end of 2019.

De­spite the fail­ure of South Stream, which was de­signed to cross the Black Sea from Rus­sia to Bul­garia and fur­ther into the EU in or­der to de­prive Ukraine of Rus­sian gas tran­sit to the Balkans and Italy, Moscow was able to come to an agree­ment with Turkey. Re­gard­less of the ag­gra­va­tion of Rus­sian–Turk­ish re­la­tions in 2015 due to Syria and the Rus­sian air­craft shot down by the Turk­ish Air Force, Ankara is­sued the first build­ing per­mits for a com­pa­ra­ble pipe­line, the Turk­ish Stream, in Septem­ber 2016. Its bi­lat­eral im­ple­men­ta­tion agree­ment came into force in Fe­bru­ary 2017, while the com­pany South Stream Trans­port B.V., orig­i­nally es­tab­lished for the con­struc­tion of South Stream, con­cluded a con­tract with Allseas Group for the con­struc­tion of a sec­ond line. By early May, work had al­ready be­gun on the un­der­wa­ter part of the pipe­line. Cur­rently, this means there will be two lines with a ca­pac­ity of 15.75 bil­lion m³ each, one com­pletely ded­i­cated to fur­ther tran­sit through the European part of Turkey to the EU (the Balkans and Italy).

Ac­tual con­struc­tion of the un­der­wa­ter part of Turk­ish Stream started in May 2017. Alexey Miller has stated that that "the project is be­ing de­liv­ered strictly ac­cord­ing to plan and by the end of 2019 our Turk­ish and European con­sumers will have a re­li­able new route for im­port­ing Rus­sian gas". This is a very re­al­is­tic time­frame given pre­vi­ous pipe­line ex­pe­ri­ences. Blue Stream, the first pipe­line in the Black Sea from Rus­sia to Turkey de­signed to by­pass Ukraine, through which all Rus­sian gas has been trans­ported to this coun­try un­til now, was built fif­teen years ago. Con­struc­tion of its off­shore sec­tion with a ca­pac­ity of 16 bil­lion m³ lasted less than a year – from Septem­ber 2001 to May 2002. Com­mer­cial sup­plies started an­other six months later in Fe­bru­ary 2003.

EARLY PREPA­RA­TIONS

How­ever, there is more to it than the con­struc­tion of the main pipe­lines. Gazprom is ac­tively work­ing to­wards cre­at­ing pipe­line in­fra­struc­ture to dis­trib­ute their fuel to as many con­sumers as pos­si­ble who now re­ceive it in tran­sit through Ukraine, par­tic­u­larly in Cen­tral Europe. Gazprom booked new ca­pac­ity at auc­tion in March for ex­tra sup­plies that are sup­posed to come through Nord Stream 2 to Germany (58 bil­lion m³ per year at the point of en­try), the Czech Repub­lic (around 45 bil­lion m³) and Slo­vakia for the pe­riod from Oc­to­ber 1, 2019 to 2039. To this end, prepa­ra­tions are be­ing made for the con­struc­tion of other trans­port net­works: the EUGAL pipe­line to move ad­di­tional amounts of gas from the north of Germany to the south and the Czech bor­der (planned ca­pac­ity of up to 51 bil­lion m³ per year) and the ex­pan­sion of gas trans­mis­sion sys­tems in the Czech Repub­lic and Slo­vakia. In April 2017, Win­ter­shall board mem­ber Thilo Wieland said that the con­struc­tion of EUGAL will start in mid-2018 and that gas will start to flow through its first branch by the end of 2019: or­ders for build­ing ma­te­ri­als have al­ready been made and the ten­der for the works is pro­ceed­ing at "full speed".

The ex­ist­ing OPAL pipe­line with a ca­pac­ity of 36 bil­lion m³ that con­nects the first Nord Stream to Germany and the Czech Repub­lic (EUGAL is sup­posed to run par­al­lel to it) has al­ready demon­strated how threat­en­ing such projects are for the Ukrainian GTS. They open ac­cess that by­passes Ukraine to key EU mar­kets for our tran­sit. At the end of Oc­to­ber 2016, when the European Com­mis­sion re­laxed re­stric­tions and for a short time ap­proved an in­crease from 50% to 80% in the ca­pac­ity that Gazprom could fill with Rus­sian gas from Nord Stream, it caused an im­me­di­ate and sharp de­cline in fuel trans­porta­tion through Ukraine's GTS. In De­cem­ber, Naftogaz was forced to sound the alarm, be­cause the use of the Nord Stream– OPAL route in­creased from 57.1 mil­lion m³ to 80.5 mil­lion m³ per day, while the vol­ume of gas trans­porta­tion through the Ukrainian GTS to­wards Slo­vakia de­creased from 148.9 mil­lion m³ to 120.8 mil­lion m³. The European Com­mis­sion's ap­proval was later over­turned in court. How­ever, the planned con­struc­tion of EUGAL with "spare" ca­pac­ity can take away the lion's share of Ukraine's tran­sit, even if Gazprom only fills it to the 50% al­lowed by European leg­is­la­tion.

The sit­u­a­tion is sim­i­lar in the South. If com­pleted, Turk­ish Stream will en­ter Turkey in its ex­treme western, European part, the lo­ca­tion of a sec­tion of the Trans-Balkan Pipe­line that un­til now trans­ported Rus­sian gas tran­sited through Ukraine to Turkey and the Balkans. In this way, Gazprom could eas­ily trans­fer its sup­plies not only to Turkey (11.6 bil­lion m³ in 2016), but also to Greece and Bul­garia away from the Ukrainian GTS. Com­bined, this is about an­other 6 bil­lion m³. Fur­ther­more, Gazprom signed a co­op­er­a­tion agree­ment with European com­pa­nies Edi­son and DEPA on June 2, 2017 that en­vis­ages the joint or­gan­i­sa­tion of a south­ern route to sup­ply Rus­sian gas to Europe through Turkey, Greece and then Italy via the Po­sei­don pipe­line. Elio Rug­geri, Vice-Pres­i­dent for Gas In­fra­struc­ture at Edi­son, an­nounced ear­lier this year that the likely project com­ple­tion date will be be­fore 2022.

In early 2017, Gazprom Deputy Chief Ex­ec­u­tive Alexan­der Medvedev said that the com­pany is also will­ing to con­sider us­ing the Trans-Adri­atic Pipe­line

THE FIRST STRAT­EGY FOR RE­SPOND­ING TO THE THREAT THAT GAZPROM WILL STOP FUEL TRAN­SIT TO THE EU VIA UKRAINE SHOULD BE THE RE­DUC­TION — AND IDE­ALLY ELIM­I­NA­TION — OF THE NEED TO PUR­CHASE IT BY THE EARLY 2020S

(TAP) to sup­ply Italy with Rus­sian gas. Con­struc­tion started in May 2016 and is cur­rently 40% com­plete, due to be fin­ished by 2019. TAP, which was orig­i­nally planned for trans­port­ing nat­u­ral gas from Azer­bai­jan and other coun­tries in the Caspian Sea re­gion and Mid­dle East to Europe, was sup­ported by the European Union for the pur­pose of di­ver­si­fy­ing fuel sources, but could now fa­cil­i­tate the im­ple­men­ta­tion of Gazprom's plans. On the ba­sis of the same EU en­ergy leg­is­la­tion, the Rus­sian mo­nop­o­list can bid for 50% of TAP ca­pac­ity (which is planned at 10 bil­lion m³ with a po­ten­tial ex­pan­sion to 20 bil­lion m³). There­fore, from 2020, when the Turk­ish Stream has a high chance of be­ing com­pleted and the cur­rent con­tract for the tran­sit of Rus­sian gas through the Ukrainian GTS comes to an end, much of the nat­u­ral gas con­sumed by Italy could be trans­ported through the TAP.

CHANGES IN CON­SUMP­TION

Rus­sia's move away from gas tran­sit through Ukraine af­ter 2019 could be made eas­ier by sig­nif­i­cant changes in the ge­o­graph­i­cal spread of its ex­ports over re­cent years. From 2011 to 2016, the im­por­tance of the fol­low­ing mar­kets grew for Gazprom: Germany (from 34 bil­lion m³ to 49.8 bil­lion m³), Great Bri­tain (8.2 to 17.9 bil­lion m³), France (9.5 to 11.5 bil­lion m³) and Aus­tria (5.4 to 6.1 bil­lion m³). It would be eas­ier to in­crease ex­ports to most of them through Nord Stream and Nord Stream-2. On the con­trary, the share of con­sumers that re­ceived all (or most of) their Rus­sian gas through Ukraine has de­creased. For ex­am­ple, sup­plies to Cen­tral Europe (ex­clud­ing Poland and the Baltic states) de­clined from 30.8 bil­lion m³ (2011) to 23.9 bil­lion m³ (2016). Even ex­ports to Italy (24.7 bil­lion m³), which now ac­count for the largest pro­por­tion of Rus­sian gas tran­sit through the Ukrainian GTS, have been stag­nat­ing since 2013. The coun­try has an ac­tive pol­icy of balanc­ing out Rus­sian gas sup­plies with those from Al­ge­ria, which has re­cently in­creased de­liv­er­ies.

The main fac­tor that is clear­ing the way for Rus­sia to en­ter the gas mar­ket of the in­dus­trial core of Europe (north­west Germany, the Benelux, north-eastern France and Eng­land) is the dra­matic de­cline of gas pro­duc­tion in what was un­til re­cently one of the largest European sup­pli­ers, the Nether­lands (from 77.7 bil­lion m³ in 2013 to 45.5 bil­lion m³ in 2016). This de­cline was off­set by in­creas­ing sup­plies from Rus­sia and Nor­way (10 bil­lion m³). In ad­di­tion, nat­u­ral gas is be­com­ing more pop­u­lar in these EU coun­tries as an al­ter­na­tive to coal in ther­mal power gen­er­a­tion. In 2016, the share of coal power gen­er­a­tion in the UK dropped to 9% from 23% only a year ear­lier, mainly due to a newly in­tro­duced tax on emis­sions. There are plans to close the coun­try's last coal power plant in 2025. Mean­while, mem­bers of the Eur­elec­tric elec­tric­ity in­dus­try as­so­ci­a­tion from 26 coun­tries have pledged not to launch any new coal power fa­cil­i­ties af­ter 2020.

RE­MOV­ING THE NEED FOR IM­PORTS

When Gazprom is able to trans­fer gas sup­plies to such large con­sumers as Germany, Aus­tria, Czech Repub­lic, France, Italy, Turkey and Greece onto other routes, it will be able to aban­don the lion's share of tran­sit through Ukraine by re­duc­ing its max­i­mum level to the vol­umes re­quired for Moldova, Slo­vakia, Hun­gary and Ro­ma­nia, which have col­lec­tively been buy­ing from 13 to 14 bil­lion m³ of Rus­sian gas in re­cent years. This will clearly make it im­pos­si­ble to en­sure re­verse­flow sup­plies of al­most the same amount of gas to Ukraine (11.1 bil­lion m³ in 2016) which the coun­try needs to pur­chase from its western bor­der.

There­fore, the first strat­egy for re­spond­ing to the threat that Gazprom will stop fuel tran­sit to the EU via Ukraine should be the re­duc­tion – and ide­ally elim­i­na­tion – of the need to pur­chase it by the early 2020s. This ob­jec­tive can be achieved by both in­creas­ing do­mes­tic pro­duc­tion and tak­ing ad­van­tage of the sig­nif­i­cant po­ten­tial to re­duce the con­sump­tion. While the pro­duc­tion in both the public UkrGasVy­dobu­van­nya and most pri­vate gas pro­duc­ing com­pa­nies is in­creas­ing and could con­tinue to grow, the gov­ern­ment uses very lit­tle of the op­por­tu­ni­ties avail­able for fur­ther re­duc­ing en­ergy use.

THE BEST OP­TION WOULD BE TO COM­PLETELY RE­JECT ANY CON­TRACTS WITH GAZPROM AF­TER 2019 AND MAKE CON­TRACTS ONLY WITH THE EUROPEAN COM­PA­NIES THAT PUR­CHASE GAS FROM IT

Ac­cord­ing to Naftogaz, con­sump­tion of nat­u­ral gas in 2016 de­clined by only 0.6 bil­lion m³ com­pared to the pre­vi­ous year (though the State Sta­tis­tics Bureau ac­tu­ally shows that it in­creased). The prob­lem is struc­tural, how­ever: while in­dus­try has re­duced con­sump­tion by 1.3 bil­lion m³ (from 11.2 to 9.9 bil­lion m³), house­hold con­sumers and re­gional heat­ing providers, whose con­sump­tion is most af­fected by en­ergy con­ser­va­tion mea­sures, on the con­trary used 0.8 bil­lion m³ more than in 2015 (19.2 from 18.4 bil­lion m³). The in­dus­trial sec­tor has vir­tu­ally ex­hausted its space for sav­ings. De­spite the po­ten­tial for en­ergy sav­ings at most fa­cil­i­ties, en­ergy use may even in­crease in the com­ing years if eco­nomic growth re­cov­ers.

There­fore, with­out mea­sures fo­cused on re­duc­ing the ex­ces­sive con­sump­tion of nat­u­ral gas by lo­cal heat­ing providers (which was clearly seen dur­ing the lat­est heat­ing sea­son) and other house­hold con­sumers, gas use in Ukraine in the com­ing years could even in­crease. Ac­cord­ing to the State Sta­tis­tics Bureau, in Jan­uary–April 2017 Ukraine con­sumed 16 bil­lion m³ of nat­u­ral gas, or 11.6% more than in the same pe­riod in 2016 (14.35 bil­lion m³). This oc­curred de­spite the sig­nif­i­cantly warmer spring and the sus­pen­sion of the heat­ing sea­son in most parts of the coun­try in early April. In an­nual terms, con­sump­tion reached 33.68 bil­lion m³ (ex­clud­ing what was used for trans­porta­tion by Ukr­transgaz) from May 2016 to April 2017, com­pared to 30.29 bil­lion m³ for the 12 months from Septem­ber 2015 to Au­gust 2016 when the coun­try recorded its low­est level of gas con­sump­tion since gain­ing in­de­pen­dence.

The gov­ern­ment must mon­e­tize sub­si­dies to house­holds as soon as pos­si­ble, and step up the fund­ing for en­ergy ef­fi­ciency. In the first quar­ter of 2017, ac­cord­ing to the Min­istry of En­ergy and Coal Min­ing, ther­mal power plants and com­bined heat and power plants (CHPPs) alone con­sumed 1.67 bil­lion m³ of nat­u­ral gas out of 12.83 bil­lion m³ to­tal use in the coun­try (com-

pared to 4 bil­lion m³ for the whole of last year, a fig­ure which in 2017 is even ex­pected to in­crease). The main con­sumer in the first quar­ter of this year (0.813 bil­lion m³) was KyivEn­ergo, con­trolled by Ri­nat Akhme­tov's DTEK, which burns fuel ex­tremely ir­ra­tionally, along­side other CCHPs in the coun­try's ma­jor cities: two in Kharkiv (214.8 mil­lion m³), Kryvyi Rih (76.1 mil­lion m³), Odesa, Kre­menchuk, Darnyt­sia [dis­trict in Kyiv] and Lviv (40-60 mil­lion m³ each for a to­tal of 202 mil­lion m³).

If Ukraine con­tin­ues to burn gas to heat apart­ments in large cities, then with the cur­rent de­te­ri­o­ra­tion of heat dis­tri­bu­tion net­works it is nec­es­sary to move to­wards max­i­mum de­cen­tral­i­sa­tion, i.e. es­tab­lish­ing boiler fa­cil­i­ties near ma­jor cus­tomers. Given the heavy losses when trans­port­ing heat through an en­tire city, the cen­tralised sup­ply of hot wa­ter is also su­per­flu­ous (at least out­side the heat­ing sea­son). Even the sup­ply­ing com­pa­nies ad­mit that in­di­vid­ual apart­ment boil­ers would be more cost-ef­fec­tive. This will re­quire ur­gent mea­sures to in­crease the ca­pac­ity of elec­tri­cal in­stal­la­tions in res­i­den­tial build­ings, but would re­duce gas con­sump­tion. At the same time, thanks to tar­iff in­cen­tives the in­creased use of elec­tric­ity for heat­ing wa­ter can be con­cen­trated dur­ing pe­ri­ods of min­i­mum daily con­sump­tion. This will also cre­ate the con­di­tions for a more bal­anced en­ergy net­work and the pro­duc­tion of more cheap power at nu­clear plants.

TRANS­PORT­ING RUS­SIAN GAS WITH­OUT GAZPROM

The end of gas tran­sit through the Ukrainian GTS from 2020 is not only a threat, but also an op­por­tu­nity for the tran­sit po­ten­tial of Ukraine. The con­fronta­tional model of re­la­tions with Gazprom that has been seen in re­cent years could hardly be con­sid­ered op­ti­mal un­der nor­mal cir­cum­stances. How­ever, look­ing at the way the Rus­sian com­pany im­posed its own terms of do­ing busi­ness be­fore 2014, which was most ev­i­dent in the oner­ous con­tracts of 2009, there is ul­ti­mately no al­ter­na­tive. Es­pe­cially against the back­ground of Rus­sian ag­gres­sion against Ukraine.

There­fore, the best op­tion would be to com­pletely re­ject any con­tracts with Gazprom af­ter 2019 and make con­tracts only with the European com­pa­nies that pur­chase gas from it. That gas would have to be handed over at the Rus­sia–Ukraine or Be­larus–Ukraine bor­der.

Firstly, this will end the de­pen­dence on a gas tran­sit mo­nop­o­list, and re­place it with 5-7 or pos­si­bly more European com­pa­nies that will buy fuel from Gazprom at the Rus­sian bor­der. Se­condly, there will be the op­por­tu­nity to make bet­ter use of the Ukrainian un­der­ground gas stor­age (UGS) fa­cil­i­ties that the Rus­sian sup­plier has long ig­nored for po­lit­i­cal rea­sons. European com­pa­nies could fill them with fuel pur­chased on the Rus­sian bor­der for pe­ri­ods of peak con­sump­tion, which is ben­e­fi­cial for them. Thirdly and fi­nally, in this case Ukraine would not have to buy gas from European hubs at an in­flated price. Even if a cer­tain deficit in do­mes­tic pro­duc­tion is main­tained, Ukrainian con­sumers would be able to pur­chase fuel from European com­pa­nies im­me­di­ately af­ter it en­ters the Ukrainian GTS from Rus­sia.

If favourable con­di­tions are cre­ated for European pur­chas­ing com­pa­nies to trans­port Rus­sian nat­u­ral gas through the Ukrainian GTS and store it in UGS there, its tran­sit through our ter­ri­tory could not only not de­crease, but ac­tu­ally in­crease from the cur­rent vol­ume, even af­ter Gazprom com­pletes its by­pass routes. Though on a new, com­pet­i­tive ba­sis. For this, it is nec­es­sary that the prospect of pur­chas­ing fuel on the Rus­sian bor­der be sig­nif­i­cantly more at­trac­tive for European com­pa­nies than buy­ing it af­ter de­liv­ery to hubs in Turkey, Aus­tria and Germany. Per­haps Kyiv will have to agree on joint ven­tures to run the Ukrainian GTS (or some of its main pipe­lines) with the European con­sumers of Rus­sian gas for whom the Ukrainian sup­ply route could be eco­nom­i­cally ad­van­ta­geous un­der cer­tain con­di­tions (Germany – 49.7 bil­lion m³, Italy – 24.8 bil­lion m³, France – 11.2 bil­lion m³, Aus­tria – 6.1 bil­lion m³, Hun­gary – 5.5 bil­lion m³, Czech Repub­lic – 4.5 bil­lion m³, Slo­vakia – 3.7 bil­lion m³, Bul­garia – 3.2 bil­lion m³, etc.).

It is im­por­tant to cre­ate real eco­nomic in­cen­tives so that it will be prof­itable for European com­pa­nies to de­mand that Gazprom sell them fuel at the Ukraine– Rus­sia bor­der and then trans­port it fur­ther within the frame­work of the European En­ergy Com­mu­nity un­til leg­is­la­tion is changed and cer­tain main pipe­lines can be sold to joint ven­tures started with European com­pa­nies. Ukraine, in turn, will be able to keep its GTS func­tion­ing with­out putting it un­der the man­age­ment of Rus­sia or go­ing into a joint ven­ture with it, on which Gazprom al­ways in­sisted in ex­change for con­tin­u­ing its tran­sit through our ter­ri­tory.

Of course, Ukraine will also de­pend on its Western part­ners (mainly Slo­vakia), as their rates for trans­port­ing fuel from Ukraine fur­ther west will in­flu­ence whether po­ten­tial cus­tomers give pref­er­ence to the Ukrainian route or Gazprom's pipe­lines. How­ever, our neigh­bours are no less in­ter­ested in pre­serv­ing the old trans­port route than we are, as other­wise they would also lose the lion's share of their tran­sit.

More­over, the ter­mi­na­tion of Rus­sian gas trans­mis­sion to the Balkans through the Ukrainian GTS could cre­ate con­di­tions for the start of de­liv­er­ies of Caspian nat­u­ral gas from Turkey to Ukraine through the Tran­sBalkan Pipe­line. Work­ing in the op­po­site di­rec­tion, it could be a tool for di­ver­si­fy­ing hy­dro­car­bon sup­plies to Ukraine and then – us­ing our GTS – to other neigh­bour­ing coun­tries in the re­gion.

Only when we take up the ac­tive po­si­tion of a party to the strug­gle for tran­sit routes will we be able to in­ter­est key European com­pa­nies in such a trans­port for­mat and will we have a chance to re­tain the tran­sit of Rus­sian gas through our ter­ri­tory af­ter 2019 and make our un­der­ground stor­age fa­cil­i­ties avail­able for con­stant com­mer­cial use in co­op­er­a­tion with other European com­pa­nies. It is nec­es­sary to put guar­an­tees in place so that some or all of the shares in the joint ven­tures launched with com­pa­nies from Europe will not be trans­ferred to Gazprom or an­other struc­ture con­trolled by the Rus­sians in the fu­ture.

From 2011 to 2016, sup­plies to Cen­tral Europe (ex­clud­ing Poland and the Baltic states) de­clined from 30.8 bil­lion m³ to 23.9 bil­lion m³.

Ex­ports to Italy have been stag­nat­ing at around 25 bil­lion m³ since 2013

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