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Monday, March 19, 2018

On Russian gas for Ukraine will earn France

Kiev boasts of a new success in “energy independence from Russia”: one of the French companies allegedly starts direct gas supplies to Ukraine. However, upon closer examination it is easy to detect that the agreement has a different status and meaning than about this announcement. Profitable and it is not Ukraine, and France.

One of the largest energy companies in Europe, the French Engie, entered the Ukrainian market and will launch direct gas supplies to Ukrainian consumers, said the commercial Director of the company “Naftogaz Ukraine” Yuri Vitrenko. “We, in fact, not only in words create a transparent and competitive gas market in Ukraine is in the interests of Ukrainian consumers. Until recently, it seemed impossible,” says Vitrenko on the page in “Facebook”.

“Most likely, they will use it in negotiations with Russia in order to get another discount on Russian gas”

However, in the words of the Ukrainian energy sector remains more pathos than the real solution of the accumulated problems in the energy sector.

The French themselves have confirmed that it is indeed signed with the Ukrainian operator of the gas transportation system “Ukrtransgaz” is some kind of agreement. However, first is a framework agreement, i.e. the agreement on intentions. Secondly, it concerns the transmission and storage of gas, which will allow the French company since the winter to store gas in underground storage facilities of Ukraine. No direct supply of gas from the Engie out of the question. The French company is one of the main suppliers of gas to Western Ukraine. In 2015, she is sold to Naftogaz of Ukraine 3.5 billion cubic meters. But we are talking about the reverse supply of natural gas.

In other words, France does not produce the gas, it imports from Russia, the Netherlands, Norway and Algeria. A large share of LNG as France has three terminals for its reception. And later resells Ukraine part of the Russian gas running through Ukrainian gas transportation system. This scheme is not going anywhere, says CEO of national energy security Fund Konstantin Simonov.

Makes no sense – economic or otherwise – that France was carrying, for example, LNG from its ports across Europe to sell fuel to Ukraine. This will require huge logistics costs, the Board Rosgazifikatsia and transit countries. Easier still part of the Russian gas to resell to Ukraine, getting its margins.As Ukraine makes Russian gas to European

Vladimir Putin on the eve hinted that reverse supply are organized in the interests of certain circles. “I have reason to believe that mediators who participate in these transactions by buying at the reverse, they seem close to the heart of some of the leaders of fuel and energy complex in Ukraine. Well, the flag in their hands, let them work, only thing that they have provided transit to European countries”, – Putin said.

The reverse is a “violation of contracts between Gazprom and its counterparts in Europe.” “But we see this already through your fingers, so to speak, with understanding. If you like it more in reverse, please let the reverse buy,” – said the President.

“The reverse has no long-term contracts. Most likely the parties (Ukraine and Engie) just recorded and so the existing relationship. No amount and especially the price of reverse gas could not be registered”, – said Simonov. After all, the price of reverse gas is formed depending on price of gas on European hubs and spot prices are confirmed by constant fluctuations.

Now Ukraine buys reversible gas at a price of about $ 200 per thousand cubic meters, while Russia continues to offer fuel at $ 180. The cost of gas to final industrial consumers in Ukraine now exceeds $ 300 per thousand cubic meters.

So this whole Ukrainian rhetoric about some kind of competition in the gas market similar to the next attempt of Kiev to do something to spite Russia. “Most likely, they will use it to knock out another discount on the Russian gas” – does not preclude the Professor of the higher school of Ranepa, senior researcher of the sector of the energy policy Institute of Economics of RAS Ivan Kapitonov.

On the other hand, if the Ukrainian-French agreement will enter into a legally binding contract, do the Engie would be able to store its gas in Ukrainian underground storage facilities. The capacity of Ukrainian UGS filled less than half. Another thing is that Ukraine receives only the opportunity to make some money on the provision of services for storage of another gas, and the French to pay for gas storage in Ukraine is less than in the European UGS. One of the consequences of reforming the gas market in Europe is a serious rise in the cost of services for the storage of gas in underground storage, explains Simon. Early underground gas storage in Europe was part of a large energoholding, but the EU is forced to allocate UGS into separate businesses to create competition. And that just led to growth of tariffs for gas storage. Therefore, the French would be more profitable to store gas, for example, in Hungarian storage facilities, and Ukrainian.

“Engie will have gas, which in winter will be able to raise and send to Europe. That is, to use Ukraine as a storage system,” – said Simonov. In other words, the part of the Russian gas it buys to France, she will resell in the form of reverse to Ukraine, and part to save for their needs in winter in Ukrainian underground storage facilities.

But this story does nothing to solve the main question for Ukraine is how to get through the winter without the energy crisis and the violation of its transit obligations. Moreover, if France would keep its gas in Ukrainian underground storage facilities, this may create even greater problems in the winter.

“The system was originally designed to work: on the border with Europe was built on the store so in the winter to raise the gas and quickly send to Europe. And the gas that comes from Russia, has consumed Eastern Ukraine. The system was balanced due to the fact that in winter there was no need to haul gas across Ukraine,” – says the source.

“And now, Kiev does not want to take Russian gas for consumption in the East. So, Ukraine should raise gas from storage and haul it to the East, conventionally, in Kharkov. This thread will face in the system of Russian gas transit to Europe, and even in peak season. And now I have to raise the gas Engie to send it to Europe. The French will not sell them in Ukraine, they will sell it to neighboring countries. That is, the threads will overlap each other. This scheme carries certain risks – as the even more complex system will be balanced in peak periods?” sums up Simon.


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