Slovak gas link seen giving Ukraine "chance of lasting through the winter"

By bne IntelliNews July 8, 2014

Tim Gosling in Prague -

 

Slovak gas pipeline operator Eustream claimed on July 7 that it will have a route feeding EU gas to Ukraine running at full capacity ahead of the winter heating season, and that "Ukraine stands a chance of lasting through the winter".

Once work has finished on reversing the flow through the Vojany pipeline, it is booked to ship up to 10bn cubic meters of gas per year (cm/y) from Slovakia to Ukraine until 2019. The route is part of an EU-backed plan to alleviate Russian pressure on cash-strapped Kyiv by supplying cheaper gas from other EU states.

Moscow cut supplies to Ukraine over its unpaid bills in June. That leaves the EU exposed, with Ukrainian pipes carrying around 40% of Russian gas headed into the bloc, and Kyiv likely to be tempted to siphon off some gas should it find itself short come the winter, as it did in the previous "gas wars" in 2006 and 2009.

Poland and Hungary are already sending small volumes via reversed pipelines, but Slovakia, which sits on the mainline carrying Russian gas through Ukraine to Europe, is key. However, despite years of negotiation, Bratislava has refused to play ball. It claims that reversing one of the four pipelines on the mainline would be at odds with its contract with Russian state-controlled Gazprom. It has also slammed Ukraine for its past conduct. 

Protect and survive

Bratislava's stance has raised concern in the West. Weeks of talks early in the year produced little more than bickering and vitriol. Then, on April 9, US Vice President Joe Biden rang Slovak Prime Minister Robert Fico. Slovakia agreed on April 22 to open the disused pipeline. However, the capacity it can offer is well below the 30bn cm/y or so it could achieve if it were to reverse one of the four main pipeline routes.

Together with the supplies from Hungary and Poland, Ukraine can import about 16.5bn cm/y from the EU, said Tomas Marecek, chairman of Slovak pipeline operator Eustream - jointly owned by Bratislava and Czech energy holding EPH. That would replace about two-thirds of the gas Ukraine usually buys from Russia, he claimed. Ukraine consumes around 55bn cm/y.

By reducing consumption and using underground storage, Ukraine stands a chance of lasting through the winter, Marecek claimed to Bloomberg in an interview published on July 7. Ukraine will need to reduce its use by 20% to survive without Russian supplies, Naftogaz CEO Andriy Kobolyev said on July 4.

During the first few months of operation, Vojany may not be able to run at full capacity should the flow of transit gas from Russia to Europe through Ukraine be interrupted, Marecek said. During September, Vojany’s flow will be “interruptible,” meaning no gas will flow if Russia interrupts supplies to the EU. From October 1, the pipeline will offer a firm capacity of 6.5bn cm; the remaining 3.5bn cm will remain interruptible until March 1. Vojany’s full capacity will become available at all times at the end of next winter, he said.

Fine line

Slovakia is attempting to walk a fine line through the crisis in Ukraine, as it seeks to protect its own favourable gas supply from Russia. Gazprom handed it a discount in April, while Slovakia sees huge revenue from its transit business. Moscow has given the Vojany pipeline project its blessing.

The response of the EU - and particularly the US - has been lukewarm, and the stance of Bratislava and EPH is reported to have raised eyebrows. It's little wonder then that they are keen to talk up the Vojany pipeline's contribution to alleviating Russian leverage on Ukraine while also keeping Moscow on side.

At the same time, analysts say the US has come round somewhat to understand Bratislava's dim view of Ukraine's track record on paying its gas bills, as it has observed the process. "Washington initially believed the Ukrainians during the long talks on reversed gas flows," says Sharon Fisher at IHS Global, "but that changed somewhat," as it watched Kyiv's behaviour during the negotiations. "If I were Slovakia, I don't know if I'd be in a hurry to support the Kyiv government with huge volumes of gas either." 

However, Washington remains wary of other aspects of Slovakia's foreign policy. A visit to Moscow by Foreign Minister Miroslav Lajcak in May was particularly noted, as was the rejection of increased Nato presence by Prime Minister Fico a month later. 

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