Naftogaz began work on “Plan B” in case the Nord Stream 2 gas pipeline is completed

Naftogaz began work on “Plan B” in case the Nord Stream 2 gas pipeline is completed
Ukraine Naftogaz preparing a "plan B" in case Russia ends its gas transit business
By bne IntelliNews November 5, 2018

Ukraine’s state-owned gas monopolist Naftogaz has begun working on a “plan B” in case its worst fears of losing its transit business for Russian gas come true after Russia’s Nord Stream 2 gas pipeline comes online in 2019, the local press reported on November 5.

Ukraine currently earns about $3bn a year from transit of Russian gas across its territory to its European customers. Gazprom has been shipping record volumes of gas to Europe in the last year, but currently gas deliveries have slumped and only half Ukraine’s pipeline capacity is being used.

Shipment of Russian gas through Ukraine to the EU have dipped below 50% of the pipeline’s capacity, according to January to October figures from Ukrtransgaz, the gas transport company. Gas transmission was down 7% y/y to 72bn cubic metres (cm), Ukrtransgaz reported. At this rate, the pipelines will carry 86.4bn cm, or 48.5% of the system’s annual export capacity of 178bn cm, by the year end. The current contract expires at the end of next year.

Naftogaz’s CEO Yuri Vitrenko said during an interview with the ZIK television channel that Ukraine will sue for damages if it is cut out of the loop completely. Kyiv estimated the potential damage would amount to $12bn and a corresponding claim has already been filed to international arbitration, Vitrenko said.

In his opinion, there is a “very high chance” that the Nord Stream 2 will be built, despite Ukraine’s efforts to scupper the project. “The German government supports this project, many European companies, unfortunately, thanks to direct corruption support this project,” said Vitrenko.

After the launch of the gas pipeline, the transit of gas through the territory of Ukraine may be stopped altogether, continued Vitrenko. He added that he was not aware of any promises made by German Chancellor Angela Merkel to preserve the transit of Russian gas through Ukraine. “What does promise mean? We have no signed contract,” said Vitrenko.

In the meantime the priority for Naftogaz remains “plan A”, which presupposes the preservation of its transit business.

The Nord Stream 2 project involves the construction of two gas pipeline lines with a total capacity of 55bn cm from the coast of Russia through the Baltic Sea to Germany, bypassing Ukraine, Belarus, Poland and other Eastern European and Baltic countries.

While Ukraine is campaigning to keep its Russian gas transit business, at the same time it is trying to wean itself off using Russian gas for its own energy needs.

Between January and October Ukraine reduced imports of natural gas by 22.4% (by 2.637bn cm) compared to the same period in 2017, to 9.141bn cm, according to Ukrtransgaz.

According to Interfax-Ukraine calculations, Slovakia during this period supplied 5.634bn cm of gas (33.3% less compared to January-October 2017), Hungary some 2.906bn cm (25.5% more), while Poland some 601.3mn cm (40.6% less).

In October 2018 imports amounted to 1.076bn cm of gas, which is 0.3% more than in October 2017.

Over the last three years Ukraine has not imported any natural gas from Gazprom, preferring to buy gas exclusively at its western border from its partners in the EU.

At the same time Ukraine is hoping to increase the domestic production of gas to meet its own energy needs. Naftogaz said in October it will invest UAH34.5bn ($1.2bn) in the increase of natural gas production in 2019. The company will also invest UAH7.3bn in the gas transmission system. "The total amount of investments in 2019 will amount to UAH43.5bn," the Ukrinform news agency quoted Vitrenko as saying. At the same time, he added that an investment plan has not been yet approved by the supervisory board of the company. The Ukrainian government approved a resolution to allow Naftogaz to issue international bonds for up to $1bn with a maturity of up to five years on October 24.