Ukraine can help in the EU gas price crisis

Foto: Shut­ter­stock, Mykola Tys

Europe is suf­fer­ing from high gas prices. At some gas hubs, they increased more than 250% since January, and already have impact on the retail prices for house­holds in many EU coun­tries, like France, Italy, Spain. The gov­ern­ments con­sider multi-billion support pack­ages to soften the blow from the price growth. And the crisis does not look like going to the end – with more cold weather and under­filled gas stor­ages, the prices may stay high during the winter season.

Russian Gazprom and Nor­we­gian Equinor are the major gas sup­pli­ers to the EU, cov­er­ing more than 50% of Europe’s needs. Equinor reacted to the crisis with the plans to boost gas pro­duc­tion and to increase supply to the Euro­pean coun­tries. The answer from the CEO of Gazprom Alexey Miller was that Asian gas market is more attrac­tive, even with the today’s Euro­pean gas prices. There should not be any illu­sions among Euro­peans that Russia will start saving the EU economy or cus­tomers – even if the IEA argues that Gazprom is able to increase gas exports to the EU and help to cover the expected deficit.

It is not only the IEA who believes that Gazprom is able but does not aim to help solving the gas crisis in the EU. More than 40 members of the Euro­pean Par­lia­ment have sent a letter to the Euro­pean Com­mis­sion asking to inves­ti­gate pos­si­ble manip­u­la­tion by Gazprom and poten­tial vio­la­tion of the EU com­pe­ti­tion leg­is­la­tion. The U.S. Energy Sec­re­tary Jen­nifer Granholm noted at one of her brief­ings that manip­u­la­tions of gas supply might be in place, which demands more unity from the U.S. and the Euro­pean part­ners. Although Gazprom insists that it is ful­fill­ing the con­tracts by 100%, it does not deny that more can be done on its side if there is a polit­i­cal will in place.

Gazprom insists that it increased its exports to the EU to the level “close to the his­tor­i­cally recorded high”. But closer looks at the gas pro­duc­tion and use of gas export routes show there is still a lot of pos­si­bil­i­ties to increase gas exports from the Russian side. Although the year 2020 was quite uneasy for Gazprom which pro­duced only 452 bcm of gas (in com­par­i­son, gas pro­duc­tion in 2019 was 501.2 bcm), the company insisted it pro­duces enough to cover all needs inside the country and outside it. The level of Russian gas exports to Europe (incl. Turkey) varied between 179 bcm in 2020 and 203.9 bcm in 2018, and the expe­ri­ence of 2018 can prove that it should not be a problem for the company to increase gas exports up to 20%.

Source: https://www.kommersant.ru/doc/4642213

 

More­over, the exist­ing supply routes are still avail­able to rapidly increase gas exports to the EU. While Russia fully uses Nord Stream 1 and Yamal pipelines, the Ukrain­ian gas transit system still works only with part of its capac­ity. The system can transit to the EU more than 140 bcm annu­ally – yet, accord­ing to the con­tract signed in 2019, the Russian company is obliged to transit no less than 40 bcm via this route by the end of 2024. Data shows that Ukrain­ian gas pipelines, despite capac­ity, are being used on the resid­ual prin­ci­ple, mainly to cover demand peaks, while other pipelines which are con­trolled by Gazprom are working at their full capacity.

Source: https://ec.europa.eu/energy/sites/default/files/quarterly_report_on_european_gas_markets_q1_2021_final.pdf

 

Gas Trans­mis­sion System Oper­a­tor of Ukraine (GTSOU) reg­u­larly reports it is ready to trans­port more volumes of gas and can increase the transit rapidly, as the system capac­ity allows it. Accord­ing to the CEO of GTSOU Sergiy Makogon, Ukraine can solve the gas crisis in the EU through trans­port­ing more than Nord Stream and Nord Stream 2 com­bined. The capac­ity of Ukrain­ian gas transit pipelines is 146 bcm, while the capac­ity of both “Nord Streams” is 110 bcm (if exempted from the EU law and uti­lized in full capac­ity by Gazprom – which should not be the case). More­over, gas transit via Ukraine decreased by 13% in 6 months of 2021 year-on-year. Even the fact that GTSOU per­sis­tently auc­tioned addi­tional transit capac­ity, it was Gazprom who ignored this possibility.

Gazprom is already imple­ment­ing the strat­egy to avoid use of Ukraine gas pipeline system for the future. Although there is a general con­fir­ma­tion from some Russian politi­cians there might be some volumes tran­sited via Ukraine in the future, such volumes might not be enough to keep the Ukrain­ian gas system prof­itable. There might be another sce­nario, when too low transit volumes would make impos­si­ble for Ukraine to comply with quality stan­dards of transit to the EU at all, and there will be no backup option in case of similar gas crisis in Europe or in case some of Russian pipelines – espe­cially the off­shore “streams” which don’t have a pos­si­bil­ity to quickly reroute gas flows – will stop for main­te­nance or repairs. In that case, the sce­nar­ios like the EU meets today could be even more frequent.


Olena Pavlenko is Chair of the PWYP Global Council and Pres­i­dent of the DiXi Group, a Kyiv-based think-tank spe­cial­is­ing in research and con­sul­ta­tions in the energy sphere. 

Olena works in the energy sector for more than 17 years, dealing with such issues as energy secu­rity, energy trans­parency, oil and gas market lib­er­al­i­sa­tion, EU-Ukraine-Russian energy rela­tions, hydro­car­bon devel­op­ment issues.

Olena has served as not-on-staff Advisor to the Min­is­ter of Foreign Affairs of Ukraine (2019) and to the Min­is­ter of Energy (2015–2016).

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