Would Russia get 49% of Ukraine's gas-transport system?

Author : Oleksiy Kushch

Source : 112 Ukraine

Ukraine Naftogaz appealed with a proposal to consider the possibility of transferring to private management 49% of the Ukrainian gas pipeline network to the foreign partner
09:20, 17 September 2018


A number of media resources have reported that Naftogaz of Ukraine appealed to the Prime Minister with a proposal to consider at a meeting of the National Security and Defense Council the possibility of transferring to private management 49% of the Ukrainian gas pipeline network. Following this news, several clumsy attempts were made to disavow the above information. The authors of the scandalous letter did not expect that would become public.

Related: Naftogas wants to sell 49% stake of gas transportation system to international partners

For 27 years of independence, the gas-transport system (GTS) has become for pro-power elites a kind of a phallic symbol of their power and prosperity. In recent years, the relationship between Ukraine and Russia in the gas sector has gone catatonic in the form of arbitration litigation and overlapping our gas consumption shortages with temporary "winter" packages of supplies. The main supplies of natural gas came about through European reverse.

In 2020, Gazprom is planning to make a "cannon" in the Ukrainian pocket; then the basic transit agreement will come to an end. By this date, Nord Stream-2, which will intercept from our pipe more than 50 billion cubic meters of gas, should be completed.  At the moment, Gazprom has several basic consumer groups on the European market: Western, Central, and Southern Europe. Apart from semi-European Turkey, it has a number of its "blue streams" and the Black Sea transit route.

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The total volume of the natural gas market in Europe for Gazprom can be estimated at 175 billion cubic meters per year.

Turkey consumes about 25 billion cubic meters annually, and the "Turkish Stream" under construction with a planned capacity of more than 30 billion cubic meters will deal with these volumes. This is in addition to the Blue Stream (16 billion cubic meters).

The segment of Western European countries (Germany, France, UK, and the Netherlands) and Poland form a demand for 100 billion cubic meters. After the construction of the new Baltic gas pipeline, Gazprom's transit capabilities, bypassing Ukraine, will increase to 149 billion cubic meters, that is, these capacities will suffice even with the increase in consumption and the need for planned repairs. The gas will flow through the pipes of Nord Stream-1, Nord Stream-2 and the Belarusian route Yamal-Europe.

Related: American companies may produce of natural gas in Ukraine

The eternal "Ukrainian dependence" of Gazprom has two reasons:

  1. The need for balancing facilities in the form of underground gas storage facilities. Parametric data on the flow of gas to Europe indicate that Gazprom should have at least 30 billion cubic meters of storage in its passive capacity.
  2. A major segment of the countries of Central and Southern Europe, such as Hungary, Czech Republic, Slovakia, the Balkans, Italy. This direction takes about 50 billion cubic meters or almost a third of the European market of Gazprom.

That is why some foreign operators that carry natural gas to the EU mainly to Italy and related markets, are only interested in part of the main gas pipelines of Ukraine and our underground storage. Is this model of external management of the GTS attractive for Ukraine? It supposes that the volumes of pumping natural gas through our gas transportation system will be reduced to 50 billion cubic meters per year (maximum) with current volumes under a hundred.

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In this case, we would not have to expect to get $ 3 billion annually for the transit of Russian gas, and the GTS itself will be on the verge of payback, and even below the break-even point. It is transit to Italy (25 billion cubic meters), the Czech Republic (4.5 billion cubic meters), Slovakia (3.7 billion cubic meters), Hungary (5.5 billion cubic meters), Austria (6 billion cubic meters) and Slovenia (0.5 billion cubic meters). From 45 to 50 billion cubic meters in total.

Using a tender, Naftogaz has attracted Rothschild S.p.A. (Italian unit) as an investment consultant for the conduct of unbundling. It is not a secret that one of the most likely candidates for managing our GTS is the Italian company Snam S.p.A, which has already bought up part of the Austrian GTS and plans to buy the gas pipelines of Slovakia and Ukraine. In this case, it will have a transport corridor from the Russian-Ukrainian border to Italy, a country that has long been affiliated with the Kremlin in a system of hidden gas contracts. It is not only about the supply of Russian gas to the Apennines, but also about selling it to other EU countries through a network of Italian traders. For the same reason, the Slovak company Eustream might be a candidate for managing Ukrainian GTS.

Related: UkrGasBydobuvannya states on arrest of company's accounts

That is why the idea to sell 49% of the GTS to Americans is quite sarcastic. Given the US sanctions policy and the toxicity of US-Russian relations, it is unlikely that the United States is ready to pay billions of dollars for 49% of the GTS.

So who can buy half of our GTS? If we use the system analysis tools, flavored with rumors, let us assume that it might be Russians. Of course, no one will transfer the GTS in favor of a closed joint-stock company with two shareholders - Putin and Medvedev. Russians have learned to mimic very competently, using competent international business structuring, when the real beneficiaries come up somewhere in Panama.

Related: Merkel: Ukraine should remain participant in process of gas transit to Europe

If we think about the facts, Russian banks belonging to the largest Moscow quasi-public financial structures still operate in Ukraine, Russia is one of Ukraine's largest trading partners, a significant part of imported energy resources we get from there (coal, oil products, nuclear fuel). And the volume of a transit of Russian gas through the Ukrainian GTS in comparison with 2014 has grown from 62 to 93 billion cubic meters, that is, one and a half times.

Related: Kyiv to buy gas from Ukrnaftoburinnya at price of $377 per 1 thousand cubic meters

But the question arises: why is it happening right now? Gazprom is pressed for time, a certain deadline in the form of 2020. And it is very important for Russians to conclude a new gas transit through the territory of Ukraine after the end of the basic transit agreement and store it in our underground storage facilities; not between Naftogaz and Gazprom, but between Gazprom and the European company that would receive 49% of domestic GTS.

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