- Ukraine rejected Russian gas. But, gas that comes from European partners is of Russian origin. How rational is the reverse system?
- Physical origin of gas largely coincides with Russian gas. However, there can be some additions of Central Asian gas, which comes in the flow of transit gas to Europe. It does not matter. Because from the moment when Russian gas crosses the border between Ukraine and the European Union (in the framework of the relevant contract between "Gazprom" and its European company-partner) gas becomes to belong to a company that purchased it. From now on, it has the right to do with it what it wants. In particular – to sell it to Ukraine by reverse scheme. And this has been happenning since November 4, 2012.
– Is "Gazprom" not interested in control of all these processes?
- "Gazprom" had and still has intention in some way to affect that gas, which it believs still to be Russian, is not resold by reverse to Ukraine.
In 2015 "Gazprom" held a "powerful" experiment . From January 1 to March 31, i.e. during the first quarter, "Gazprom" reduced gas supplies to its European partners to the lowest possible level. It was done with the hope that they just would not have enough gas to resell to "Naftogaz". They would say that it was not enough gas for themselves because of the winter. The experiment failed. Reverse supplies were continued. "Gazprom" lost, according to some data, five, according to other data, six billion dollars in revenue.
In this case, reverse supplies at the end of the last year and in early 2017, when we had our first period of extreme cold weather, approved their reliability; and expectations of "Gazprom" were in vain.
– Is Europe ready to supply Kiev with European gas for a long term?
– There is no any "EuroGazprom" on the European side. It is important to understand. There are a dozen and a half of suppliers that have commercial interest. They opened a new segment of the gas market with a volume of at least several billion dollars. It's attractive, even if everyone takes a little piece. This explains the interest of European companies in reverse supplies.
During the first experiment in November-December 2012, the volumes of supplies were miserable – 56 million cubic meters of gas. Gas was supplied by the well-known company RWE Supply&Trading. It was a pioneer in reverse supply. And now we have a dozen and a half of willing suppliers.
Commercial interest is primary here. Of course, reverse gas supplies are not carried out on charitable base. But they are still a few dollars cheaper than Russian supplies. Sometimes, of course, there are higher prices because of their linking to European spot market prices which are volatile. But, after all, we got rid of the main risk during the Russian aggression against Ukraine - we have reached zero dependence on imports of Russian gas.
– The Russian market depends on the prices of gas and oil. What are the forecasts on the economic development of the neighboring unfriendly state?
– The Russian economy showed already serious negative trends in 2015. There is a little rise in oil prices, which adds to the optimism of the Russian officials. They say, it will tide them over. After all, the price in the corridor of 50-60 dollars per barrel is not a price in the corridor of 30-40 dollars.
Probably, the Russian economy will go through a kind of "point of fragility" this year. A lot of problems have been accumulated. Emptied funds do not give significant grounds for optimism about the Russian economy.
In the best case boggy depression will furhter continue, and at worst it may happen what happened to the Soviet economy. In the late 1990s everything was as if well, more or less, although the total deficit and queues for everything have become inseparable companions of Soviet reality. Similar phenomena has been now observed in Russia. On the macro level it seems that as if everything is fine, but real life is different.
Russia's financial system is quite vulnerable. Especially in terms of tightening sanctions. Although there are many information messages in the media about possible easing of sanctions. But so far, at least within the framework of the European Union and the U.S. Administration, the decision has been made on extending sanctions.
– Russia wants gas to be supplied to Europe bypassing Ukraine. What is the probability of realization of this plan?
– If to believe in "Gazprom's" propaganda, then gas would have been supplied to Europe by "South Stream" bypassing Ukraine from December 2015. There is neither "South Stream", nor those gas supplies.
It was also said that after the closure of the project "South Stream" at the end of 2016, gas would go to Turkey by "Turkish Stream." Again – it is 2017 now, the "Turkish Stream" is stopped. But to say that in 2019, as it is said in Moscow, after expiration of the contract on gas transit, Russia will not use the Ukrainian GTS, is just nonsense.
On the middle level of "Gazprom's" management it is said that they would have to continue to transit gas through Ukraine. Possibly, there will be no contract or it will be a temporary document, but it will last. And even under circumstances of ideal situation for "Gazprom" when Europe agrees on the implementation of the project "Nord Stream 2", even of the second line of the "Turkish Stream", it is still the prospect of 2022-2023 years. Because it is not even half the battle to lay a pipe on the sea bed. The construction of the gas transportation system and its commissioning is much more complicated.
In addition, Russia does not have appropriate technologies. They haven't learned to lay deepwater pipelines. They can't do anything without Western technologies.
– What will happen in the short term with the national gas transportation system?
On October, 28, 2016, the European Commission adopted a decision on OPAL pipeline which allowed "Gazprom" to use "Nord Stream" capacities more extensively. It will take from our GTS about 10 billion cubic meters of transit volumes from the current level. If we had about 82 billion cubic meters last year, then minus 10 bcm means a transit of about 70 billion cubic meters. Given our transit capacity of 142 bcm, it is 50%. That is, the half remains. The situation, on the one hand, seems not so bad, because 70 billion cubic meters of transit is almost half of the capacity that we have. On the other hand, this figure will not be stable.
The main issue is that we can't really affect the volume of transit. This is determined by the buyer. How much Europe will buy Russian gas - so much Russia will sell, and we, accordingly, will transit it using capacities which we and "Gazprom" have.
Over the past two years European countries have increased the volume of Russian gas imports amid falling gas production in the North sea. Gazprom, given available options, could do nothing without Ukrainian GTS (despite all the propaganda rhetoric that Ukraine will be excluded from the transit scheme). Especially against the background of peak demand in winter. Those bypassing projects – built and put into operation the "Nord Stream", can not meet peak demands. Only the Ukrainian GTS can do it. It was so designed yet in Soviet times.
Therefore, in case of scenario of Russia's impossibity to implement, for one reason or another, these alternate projects ("Nord Stream 2" and the second line of the "Turkish Stream"), the status quo will be maintained with about 70 billion cubic meters of gas transit. If they build only one line of "Turkish Stream", it will take from us about 10-11 billion cubic meters of transit. That is, in total this will mean that the level of transit will be about 60 billion cubic meters.
If the countries of the European Union start importing a lot more liquefied gas (and it is so) and buying less gas from "Gazprom", it will be the objective downward trend in transit volumes.
The perfect for "Gazprom" scenario would be to push through the European Commission, which loses its influence and functionality, the project "Nord Stream 2". Then the Russian side may stop transit through Ukraine.
But we will not sit idly by. Realities are quite different. The Ukrainian side should work. At the level of "Naftogaz" the work has actively continued with the European Commission in order our hybrid friends in Europe not to forget their obligations to us in the framework of the Association Agreement and the availability of spare capacities in the Ukrainian GTS. They are obliged to do so in accordance with Article 274 of the Association Agreement. The situation is not quite hopeless, not "all is lost".
– The Ministry of Energy has promised for several years that in three to five years Ukraine will be fully provided with its own gas. Is it real?
Actually, it still looks more like wishes. But strategic step towards achieving this goal was made when unification of gas prices (irrespectively of gas origin - whether it is imported gas or gas of domestic production) was adopted.
With unification of gas prices investment potential was formed. Part of revenue may be invested in expansion of national gas production.
But the second step is disrupted. It was necessary to add to the Project of the Budget for 2017 an offered reduced rent at 12%. In 2014 it was a pointless initiative to take more money to the Budget, and rent rates soared to 70%. Then it was revised, but time was lost. Last year, despite the consensus, when everyone was "for", the proposal was not adopted. At the level of the Committee of taxes and customs duties (Committee on tax and customs policy – ed.) the initiative was suddenly not supported for some reason. As a result we still have unreasonably high rent rates that do not stimulate an increase in national gas production.
Well, we will receive this year an increase of a few percent, three or five, but it does not fundamentally change the picture.
– Is it real to achieve "zero" in gas imports?
– If we set a goal to do this within five years, then it is real. Today we consume somewhere 31 billion cubic meters of gas. 20 billion of it is gas of domestic production. That means that we imported about 11 billion cubic meters to meet all the needs. For comparison: five years ago the volume of gas imports amounted to almost 45 billion cubic meters. Now it is four times lower.
If to reduce annual consumption by at least 5-7 billion cubic meters and increase domestic natural gas production by 5-6 billion cubic meters, then we could achieve "zero" of gas imports at a level of about 26-27 billion cubic meters of national annual gas consumption.
We will import gas neither from the East nor from the West. In order not to depend on Russian freaks and on European whims. In such a way we will leave Brussels without one of the levers of influence on us. It is quite possible to add several billion cubic meters of gas production by implementing an appropriate program in the next five years. But if we start now to implement it.
- Why is this program not implemented?
– It was slowed down. Everything is now postponed for another year. But where is the guarantee that while adopting the budget bill for 2018 the same situation won't be repeated?
– How rational in general is the current gas price for population? Was it possible not to raise tariffs to this level?
- It was possible not to do so. The IMF demanded 75% of the parity with the price of imported gas. And 100% of the parity on the next stage. It was possible to do it in two steps, not in one. But I think that this is nothing to discuss. Anyway it has already happened.
– How adequate is this step?
– From a purely market-based approaches, it is adequate. And one step was made, but another was not made – the creation of a competitive environment on the gas market. Only since this year such a move has started, but it has not brought drastic changes in gas market.
Since the beginning of this year, an additional player emerged in the domestic gas market – the French company Engiе. It will compete with "Naftogaz", using the fact that any company can get free access to pipeline capacities of "Ukrtransgaz" and to ensure transportation and sale of gas to end customers in the Ukrainian market.
Yet the gas volumes, that this French company sells through its subsidiary in Ukraine (“Engiе Energy Management Ukraine” – ed.), are just miserable. Actually, it is not a competitor for volume sales of “Naftogaz”. But reverse of gas for "Naftogaz" started similarly in 2012. The first volume was negligible. Then it was proved as a worthy scheme. Other players came. Now there is a certain competition for reverse gas supplies. The same will happen here.
However, the price of gas in the domestic market was raised harshly. Everybody felt this. But with competitive domestic gas sales and lowering prices it will be the process that will last for years.
– What is it particularity in?
– If there are many large players there will be extremely little opportunities to play on raising gas prices.
But, it is not worth to idealize that. We can see this in the oil market of Ukraine, where there are many networks, players, but the prices are kept according to cartel agreements. But the Antimonopoly Committee allegedly does not see that. Or notes only occasionally.
So the issue here lies in the fact that the Antimonopoly office, and most importantly – an independent regulator which we have formally, should work properly. A new law on the National regulator was adopted last year, but we understand that de facto everything remains as it was. So far, the regulator actually is not independent and is not a regulator.
Romania Gorbach, Vladislav Rudenko
