Under the EU’s Third Energy Package, Russian gas can only account for 50% of Opal’s capacity and Moscow has been requesting an exemption since the pipeline opened last year. Russian officials and European Energy Commissioner Gunther Oettinger agreed in late August that full use of Opal should be one of four parts to an interim solution on renewing gas supplies to Ukraine; the others were price, supply and transit obligations, and a debt repayment schedule (WGI Sep.3’14). But citing “technical aspects that require further attention,” Brussels said last month it would postpone a final decision on the exemption until Oct. 20, which suggests that it is waiting either for an interim deal between Russia and Ukraine to materialize or for the new European Commission to start work — or possibly both Russia’s top negotiators, Energy Minister Alexander Novak and Gazprom Chief Executive Alexei Miller, did not comment on Opal after the most recent talks in Berlin last week, although reports indicate Moscow insists that the exemption will be granted immediately. Moscow’s logic is straightforward: greater access to Opal means less need to pipe gas through “unreliable” Ukraine, which means more security of supply for European gas consumers (WGI Jun.18’14).
Kiev’s viewpoint was recently set out by Andrei Kobolev, head of state-owned Naftogaz Ukrainy: “Russia has a short-term goal, which is the Opal pipeline ... and a strategic goal of South Stream,” he said. “By calling into doubt the reliability of Ukraine as a transit country, by essentially blackmailing Europe, Russia might get permission for these two projects. But maybe it won’t.”If granted an exemption, Gazprom could theoretically pump another 18 Bcm/yr through Opal to Central Europe, home to countries such as Slovakia and Hungary that are vulnerable to transit disruptions in Ukraine. This doesn’t necessarily mean 18 Bcm/yr less will transit Ukraine, but given Gazprom’s behavior in recent weeks — refusing to meet nominations for additional gas from some Central European clients and forecasting a decline in output — the Russian gas giant will likely reduce flows via Ukraine commensurate to the new volumes it can pump through Opal. And that would deal a blow to Ukraine’s gas system. Transit volumes in January to August were
down 15% year-on-year to 46.3 Bcm, while August volumes plummeted 38% to 4.5 Bcm. At this rate, Ukraine gas transit, even without an Opal exemption, will slump to some 70 Bcm this year, down from 86 Bcm in 2013. With an exemption, transit volumes could sink below 60 Bcm/yr, which is the danger threshold.
“[The Russians] want to reduce volumes of gas transit through our gas system, and this means its operations will be unstable,” said Mykhailo Gonchar, head of the Center for Global Studies "Strategy XXI", a Kiev-based think tank. He said that even if Moscow agrees to sell 5 Bcm in accordance with an interim deal, that won’t be enough to stabilize the system at the current rate of decline (WGI Oct.1’14). “The rest is predictable. Gas will begin to dissipate in the system because of reduced pressure, and Moscow will accuse Ukraine of stealing it,” Gonchar said. “This is why a monthly transit schedule should be written out in detail and signed by all sides as part of an interim deal.''
For now, Russia can’t halt Ukrainian transit shipments entirely without incurring the wrath of consumers, particularly in Bulgaria, Serbia and Turkey, which are particularly vulnerable. But it can reduce pressure and thus dependency on Ukraine, which accounted for 52% of Gazprom’s deliveries to the EU last year, until it wins more leniency on Opal and its proposed South Stream pipeline to Central Europe, which is running into the same problems with Third Energy Package rules. And as a bonus, Moscow can deflate Ukraine’s hopes of attracting a strategic partner to invest in gas infrastructure. Ukrainian energy officials held roundtable talks with potential investors in Brussels last week, but drastically declining transit volumes do not bode well for whipping up investor interest (WGI Jul.30’14). With only 20 Bcm/yr of its own production and some 10 Bcm-
15 Bcm/yr of reverse supplies, Ukraine’s system looks much less appealing.
World Gas Intelligence
