Gazprom says EU should prepare for end of gas supplies via Ukraine

By bne IntelliNews January 15, 2015

bne IntelliNews -

 

Alexei Miller, CEO of Russian energy giant Gazprom, said that Russia's new gas export policy for Europe was that all gas currently transported to Europe via Ukraine would be rerouted to Turkey. He said that it is now up to the EU to build new gas transport infrastructure to Greece, to receive the gas from a hub to be located on the border of Turkey and Greece.

Miller made the remarks at a press conference following the first visit to Russia by the new EU energy chief Maros Sefcovic. 

Miller said that Gazprom's new negotiating position with the European Commission would be based on the new EU initiative to create an 'energy union' that would centralise European gas purchases from Russia.

"We are building our strategy and further actions based on the plan to create an energy union in the EU. These represent new challenges and opportunities for us. We hope the creation of an energy union will in no way reduce the reliability and security of energy supplies," Miller said, as quoted by Interfax.

Miller said Gazprom would cease to transport gas via Ukraine to Europe. "The Turkish Stream pipeline is the only route along which 63 bcm of Russian gas that is currently delivered in transit via Ukraine can be supplied," Miller said.

He underscored that Gazprom's previous project to build a Black Sea pipeline - South Stream - to Bulgaria to bypass Ukraine, with 63bn cubic meters annual capacity, had been abandoned. "The project is closed," he said.

In December, Russia declared it was abandoning South Steam and would instead build a pipeline of the same volume via Turkey to the border of Greece where it would create a gas hub. Russia's current transit contract with Ukraine expires in 2018, and the transit gas subsequently will flow only via Turkey to Europe. Some 50bn cubic meters will be available to Europe while 13bn cubic meters will be sold directly to Turkey. "There are no alternatives. Our European partners have been informed, and their task is now to put the necessary infrastructure in place from the border between Turkey and Greece " Miller said.

Miller warned that the EU should hurry with construction of pipelines from Turkey. "They have at the most a few years for this. It's a very, very tight schedule. In order to meet the deadlines, efforts to build new trunk pipelines in EU countries must begin right now, otherwise that gas will end up on other markets," Miller said, according to Interfax.

Gazprom currently supplies a total of 140bn-160bn cubic meters annually, of which 55bn cubic meters flows via the Baltic Sea Nordstream pipeline and 33bn cubic meters via the Yamal-Europe pipeline that passes through Belarus. This means one third of Gazprom's exports to Europe will now flow through Turkey.

EU vice president Sefcovic said that such plans might comprise a breach of contract by Gazprom and damage its reputation as a reliable supplier. "The contracts specify the place of delivery of the gas, and it is not the border between Turkey and Greece," he said, according to Interfax.

"The question arises what the countries of central Europe should do," Sefcovic said. "We need to see, perhaps we can find a better solution, more economically justified," he said. Sefcovic said that a high-level working group would be formed which would include Russia's energy minister Aleksandr Novak to analyst "what infrastructure is needed, what volume of consumption, what funds would be needed".

Gazprom's move follows the breakdown in relations between the EU and Russia over Ukraine in 2014, and Kyiv's recent announcement that it was looking to unbundle its state gas company Naftogaz, which also owns the transit pipelines, and find investors for the pipeline from the EU.

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