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Henry M. Robert

At the other end of the pipeline

EU ready to help Ukraine to resolve the Russian gas debt issue
17 March, 2014 - 17:38

According to chairman of Gazprom Alexey Miller, Naftohaz Ukrainy’s debt is 1.529 billion dollars, allowing the Russian company to cancel gas rebates for Ukraine starting in April 2014. Therefore, Ukraine urgently needs to decide at what price and where to buy gas for industrial needs in the future.

The EU has offered its assistance. According to the EU Commissioner for Energy Guenther Oettinger, the main task for the country is diversification. But this does not mean abandoning Russian gas entirely, he said. Ukraine needs to pay real market price for it. “There is gas from Norway, Algeria, Azerbaijan, terminals for receiving liquefied natural gas, shale gas. If we tell Russia that we can receive gas from everywhere and from different sources, then the Russians will be more accommodating in reducing the price of its gas to Europe to world market levels and breaking link between gas prices and oil prices,” the EU commissioner added. According to him, the EU will hold talks with Ukrainian Energy Minister Yurii Prodan in Brussels on March 19 regarding the signing of the Memorandum of Understanding on the Reverse Gas Supplies from Europe to Ukraine. “We can help Ukraine to become less dependent on Russia. We did reverse deliveries in 2013. Ukraine received gas from Poland and Germany’s RWE through reverse delivery, so it is possible now. The same applies to Hungary and Slovakia,” Oettinger added. RWE has already offered its assistance in case of reduction of gas volumes supplied to Ukraine from Russia. So, whose gas today is more profitable for Ukraine to buy? Will European gas get through to Ukrainian consumers? The Day asked experts to answer these questions.

Oleksandr TODIICHUK, chairman of the International Energy Club Q-club:

“We need to establish all the technical solutions with Europe now, so that we could get from that market the maximum amount of gas under any conditions. What do we see now? Ukraine and Russia are on the brink of war. If the government is wise, it will renounce the Kharkiv Agreements in a couple of weeks and expel the Russian fleet, which poses a threat to Ukraine. It is logical to assume that Ukraine is likely to go on a rapprochement with the EU and NATO, because there is no other way to protect one’s sovereignty in Russia’s neighborhood. In such circumstances, the Russian gas price will go to 400 dollars per 1,000 cubic meters. But do not forget that international gas prices have long fallen, and no one is paying as much as Ukraine does for Russian gas.

“In my opinion, in the short term, we are unlikely to abandon the Russian energy cooperation. But this does not mean that we should sit on our hands. We need to accumulate money and improve technical readiness for pumping gas from Europe in the period from April to August, when the price of gas on the wholesale market is greatly reduced. Last year, the cost of gas on the EU market in this period decreased to 300 dollars per 1,000 cubic meters. Ukrainian underground storage capacity is 32 billion cubic meters. Ukraine produces annually 22 billion cubic meters of gas and still needs to buy 14 billion cubic meters of gas to supply all its needs. Given the needs for ‘technical gas’ to maintain Russian gas transit to the EU, total gas import needs are 17 to 19 billion cubic meters. If Ukraine is to increase energy imports from the EU, the Russian gas policy will be different: Gazprom will loathe to lose its biggest market.”

Valentyn ZEMLIANSKY, an independent energy expert:

“You do not need loud statements. First, be aware of your own strength. In my opinion, Ukraine must deal with internal problems: increase production of its own gas, reduce energy intensity and implement energy efficiency projects. Should we posture and denounce the Kharkiv Agreements, Russia will immediately send us bill for the fleet basing rights in the form of returning the 100 dollar gas rebate, which is already used. Next step will be suing Naftohaz Ukrainy before the Stockholm Arbitration Tribunal for gas arrears and accumulated debt, because interstate agreement will expire and gas relations will be maintained only between two economic entities (Gazprom and Naftohaz). Therefore, before taking drastic steps, you need to understand the consequences and what advantages are on your side. Ukraine now cannot go to a frontal attack on Russian gas. In this case, Europe will not directly help us, because they have a problem of transit of Russian gas through Ukrainian territory. Europeans understand that the escalation of the conflict could lead to a shutdown of gas supplies. Therefore, the EU will stick to diplomatic neutrality.

“Now to the promises to purchase gas from the EU. Today there is no possibility to break contact and move to buy gas from the European market, and here is why. Firstly, the agreement with the German company does not guarantee a regular supply of gas because there are no sanctions for non-compliance with certain conditions. So, Germany sells gas to Ukraine only when it has too much of it. Secondly, it is unknown how large the EU surplus will be. After all, the European market is a single finely balanced mechanism, and nobody will break it for Ukraine. It cannot cover Ukraine’s needs just yet, and will be unable to do so in the next year or two. Thirdly, the European gas price is not very different from the Russian one, standing at more or less the same 400 dollars per 1,000 cubic meters. Preparing for procurement in the European market, it is necessary to remember that only timely payments will be allowed. With Gazprom, we have the option to prolong the payment for the purchased gas.

“What to do? In the first place, we need to raise money for timely payments for Russian gas to avoid pressure from Russia. If you want to work with the EU, you need to start talking to the Europeans that we need such and such volume of gas so that supplies will be guaranteed for 2015. In parallel, we have to conduct an overall audit of the country, which will help to reduce energy consumption. In my opinion, it is possible to reduce gas consumption in Ukraine to 35 billion cubic meters over the coming decade, to build up our own gas production to 25-27 billion cubic meters and minimize gas imports. We need to operate under the real world conditions and not succumb to wishful thinking, build our own game with a measured system of compromises and balances.”

By Natalia BILOUSOVA, The Day
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