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Wednesday, June 28, 2017

New reverse route to Ukraine would be of little help

Kiev reached an agreement with Bucharest on the launch of a new reverse route and now calculates that the fall will receive gas from Europe through Hungary, Poland and Slovakia, but also through Romania. However, rejoice in the Ukraine especially there is nothing – take the country to reverse some of the losses. Gazprom will sell its gas in any case.

Ukraine and Romania signed an agreement on connecting the gas transmission systems (GTS) for transporting gas to Bulgaria through the territory of Romania and in the reverse direction.

“They’re doing the same thing they did in Poland, Hungary and Slovakia. Sign the agreement in order to be able to implement the reverse operation

The agreement covers the route of the pipeline used to transport gas from Ukraine to Bulgaria (connection point Negru Voda-1) through the territory of Romania, the press service of PJSC “Ukrtransgaz”.

“Operators are planning to provide constant and uninterrupted power for transporting gas from Ukraine to Bulgaria and uninterrupted power for transporting gas in the reverse regime,” – said in the message.

In March, Vice-President of “Ukrtransgaz” Miroslav Khimko reported on the negotiations with Romania on the possibility of the start of pumping gas to Ukraine from October this year after the signing of the agreement. “We have already agreed with the Romanian side: there will be separate pipelines for the supply in one and an opposite direction. In October 2016, they have completed the term of the contract with Gazprom. Since that time, they will be able to work with us,” he said.

In Ukraine claim that the agreement on connection to the international pipeline is part of the EC project entitled “Gas connections in Central Eastern and South-Eastern Europe” (Central and South Eastern Europe Gas Connectivity, CESEC). This project was launched in 2015 to improve the reliability of network connections in this region. Within it are combined the pipelines of Eastern and South-Eastern Europe, in particular between Greece and Bulgaria, Bulgaria and Romania.

Signed the agreement between Ukraine and Romania means the emergence of a new route for reverse gas from the EU. The Romanian way could be the fourth. Now reverse gas from EU to Ukraine goes on three routes from Hungary, Poland and Slovakia.

Romanian reverse

We are talking about the TRANS-Balkan pipeline that traditionally is Russian gas through Ukraine, Romania to Bulgaria. The gas also receive Turkey and Greece.

Through Romania on the pipe is 16-17 billion cubic meters per year. The Romanians actually carry out only the transit of Russian gas, the bulk of takes Turkey. Bulgaria buys about 3 billion cubic meters, Greece – 2 billion cubic meters, quite a bit of Macedonia, and the rest – about 12 billion cubic meters – to Turkey, said the newspaper LOOK Deputy General Director of the national energy security Fund Alexei Grivach. Theoretically, the volume of transit through Romania to Bulgaria and further to Greece and Turkey may be increased to 25 billion cubic meters, he added.

Practice shows that the reverse is not more than 10% of the volume of transit, says Grivach. That is, we can talk about the reverse of 1.7 billion cubic meters a year back from Romania to Ukraine.

“They’re doing the same thing they did in Poland, Hungary and Slovakia. Sign the agreement in order to be able to implement the reverse operation, to make a ring on the border,” – says Grivach.

How does it happen? Conditional Romania and Bulgaria (Turkey and Greece) bought more gas than they need. Then the gas is returned through the Ukrainian border back to Ukrainian system, and the amount Ukraine can take away from the transit flow for their needs. It works and reverse with Slovakia, Poland and Hungary,” – says Grivach.

Thus, Ukraine expands sources of reverse gas to three existing reverse routes in October could be added to Romanian new route – the reverse of TRANS-Balkan pipeline.

These reverse routes are already allowed Ukraine to withdraw from direct Russian gas deliveries, with the exception of the heating season, when purchases of Russian gas is still suspended. If this reverse were not, Naftogaz would not be other way but to negotiate with Gazprom.

On the other hand, the reverse is not profitable for Ukraine itself – it’s coming, as a rule, more expensive than if Naftogaz buys Russian gas directly. For example, in January of this year the average price of gas purchased in Europe to Ukraine amounted to 231 USD per thousand cubic meters (this data is the MAYOR of Ukraine), while the direct supply from Russia was for the price of $ 212. In the second and third quarter of this year Russian gas is also treated to Kiev would be cheaper than the reverse.

Reverse gas supplies from EU to Ukraine is, in fact, the supply of the same Russian gas, only through the mediation of the European traders (not bought directly from Gazprom).

“The existence of such schemes may interest some individuals, who earn on resale” – says Grivach. First and foremost, will benefit from this, European traders, who buy gas from Gazprom and resell it to Ukraine, getting on that margin. One of these intermediaries, for example, is the company Stone Trail. In March last year, Kiev bought her gas at 94-132 dollar more expensive than it sold to Gazprom. Stone Trail is part of the American private Fund Riverstone Holdings LLC, which was founded by immigrants from one of the largest investment banks in the world – American Goldman Sachs – Pierre Lapierre and David Lusen.

As Ukraine makes Russian gas evropeiskaja for Gazprom overall care of Ukraine on the reverse does not mean a serious loss volumes. “For us it changes nothing. Everything remains the same. To reverse was that Europe needs to buy more Russian gas than it needs most,” – says Grivach. The only thing is that because of the economic situation and the collapse of industrial production of Ukraine itself now have less gas consumption falls sharply.

Ukraine is losing not only in price (the reverse is more expensive than Russian gas), but also in the other. “Naftogaz has responsibilities for the selection of Russian gas contract with Gazprom, which stipulates the so-called principle of take or pay. This means that buying reversible gas (and not Russian) more expensive or about the same price as contract with Gazprom, Naftogaz still violates the agreement that is the basis for istrebovanii penalty payments. And the issue is pending before international arbitration” – recalls the expert Fund.

According to March 2016, the amount of claims of Gazprom to Naftogaz at Stockholm international arbitration is 31.8 billion us dollars. Is the cost of gas shortage in Ukraine for several years, as well as the penalties for failure to comply with the rules “take or pay”. And every quarter the amount of claims Gazprom is increasing, as Kiev continues to violate the agreement from 2009.

Before reverse supplies from Romania to Ukraine was not possible owing to the agreement of Romania with Gazprom. “It cannot be excluded that a long-term contract on transit is not allowed to exchange in the reverse direction (reverse). It concluded in 1996, then Romania was not even part of the EU and there were no such requirements in the EU”, – said Grivach. Now Gazprom will have to sign a new transit agreement with Romania, where there is no point preventing the reverse. “The new agreement will require adjustments to comply with EU rules,” – says Grivach. Problems, in his opinion, should not arise, because the extension of the contract beneficial to both parties: Romania receives transit fees, and Gazprom – the continuation of supply to Bulgaria, Greece and Turkey, which in turn without Russian gas will not survive.

Preparing for winter in question

Cost and energy to think correctly Ukraine is hampered not only Russophobic policy, but also acquired the “money” dependence on international partners. Naftogaz urgent need of imported gas for the replenishment of the underground gas storages, which is now about 10 billion cubic meters. It is very small. If to compare with last year at this time was in the vaults of 2.5 billion cubic meters of fuel, the expert of Institute of energy strategies (Ukraine) Yuri Korolchuk.

The problem of Ukraine is absence of money for purchase of import gas. She had one hope – on the EBRD loan to $ 300 million. That’s just to spend the money Kiev can only purchase more expensive reverse gas, but not Russian. With EU funds Ukraine just resumed at the weekend, a reverse gas from Poland (up to 0.3 million cubic meters per day) and four times increased imports from Slovakia (up to 8.8 million cubic meters per day).

“The current increase in the volume of injection on the reverse – it is the only merit of this loan. While there are parts of the used tools, painted the plan before October, the company received the right to sell gas,” – says Korolchuk.

The money Naftogaz will be able to buy in the EU a maximum of 1.3 billion cubic meters of gas. Plus, Kiev will be able to download in UGS of 0.5 billion cubic meters of its own gas, produced in Ukraine, in a month. Total at the expense of Europe and its resources until October 15, uploaded 3 billion cubic meters in storage, it will be 13 billion cubic meters, calculated Korolchuk. But that’s not enough.

There is still a promised loan from the World Bank for 500 million dollars, but Kiev did not agree. According to Korolchuk, the problem is that Naftogaz wants for the loan money to buy 3 billion cubic meters of Russian gas in the EU for a long time thought of it.

“As far as I know, the EU and Russia have agreed that Gazprom will increase gas transit through Ukraine to the EU. It is necessary to increase the reverse gas to Ukraine (the”return” of Russian gas), and for the needs of the Europeans. By the end of 2016, Gazprom will pump somewhere in the 25-30% or 10 billion cubic meters more gas through Ukraine than last year,” – said Korolchuk.

Due to the increase of Russian gas transit Naftogaz needs to get an additional $ 300 million. This will be enough to purchase 2 billion cubic meters of gas for the winter at a price of $ 170 per thousand cubic meters.

“Naftogaz their hard earned on the transit of Russian gas resources must, in the opinion of the EU, to be spent on the purchase of gas in Russia. This circulation of money in nature is obtained,” says Korolchuk.

In the end, Ukraine will be able to pump about 16 billion cubic meters of gas (without credit from the IB). But in this case there is a risk of disruption of the heating season in Europe in case of a cold winter. If Ukraine manages to agree on the loan from the World Bank and upload 18-19 billion cubic meters in storage by mid-October, then these risks will be reduced.

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