Just don't launch Nord Stream 2: What is behind Zelensky's 50% discount offer to Gazprom?

Author : Olena Holubeva

Source : 112 Ukraine

It is worth noting that new tariffs cannot appear at the click of the president's fingers - this is a serious procedure that must be approved by the Special Commission. Thus, even if Gazprom agreed to increase transit volumes today, it is unlikely that Ukraine could provide new conditions promptly
20:38, 1 November 2021

Open source

The Ministry of Energy and Coal presented Ukraine's gas proposal, which was approved at the last meeting of the Defense Council and sent to European institutions and the US State Department. We are talking about a meeting, after which Zelensky's team announced an ambitious plan to increase the volume of gas pumped in the Ukrainian GTS by at least 50 billion cubic meters and provide a 50% discount on additional transit volumes to Gazprom.

As follows from the presentation, the fundamental idea remains that the EU should make every effort to postpone the launch of Nord Stream 2. This is the main condition that should supposedly put Gazprom in a difficult position: unlike Naftogaz, the Russian monopolist produces more gas than the country consumes, and, they say, having filled its underground storage facilities to capacity, it will either be forced to increase supplies to Europe through Ukraine, or burn excess gas.

For pumping over 40 billion cubic meters per year, which Gazprom exports under the current transit contract, Ukraine is ready to give a special tariff, the presentation says. After the Defense Council meeting, at which the plan was approved, President Volodymyr Zelensky said in an interview with Bloomberg that Ukraine is ready to provide Russia with a 50% discount on transit in excess of the contracted volumes. At the same time, the head of the National Security and Defense Council Olexiy Danilov clarified that this is not a discount, but "special conditions." What is their essence and whether there will actually be a discount, no one understands yet. The president has already calculated that due to additional volumes at the new tariffs, transit should grow by 79%. On what numbers or fantasies such a calculation was made, it is not at all clear - it looks, frankly, like a wishful thinking.

It is worth noting that new tariffs cannot appear at the click of the president's fingers - this is a serious procedure that must be approved by the Special Commission. Thus, even if Gazprom agreed to increase transit volumes today, it is unlikely that Ukraine could provide new conditions promptly. In addition, this would require amending the current contract. And these are serious negotiations with the Russian Federation.

According to the plan of Zelensky, Europe must agree to finance the purchase of gas by countries that cannot cope with it on their own, like Moldova. Also, to form a strategic gas reserve (at least 10 billion cubic meters), which will be stored in Ukrainian underground gas storage facilities. There are no specifics on these two positions yet: under what conditions should the countries allocate finance for gas purchases? Who should finance the purchase of gas to form a strategic reserve? The authors of the proposals expect to discuss the nuances with the EU, if the matter, of course, comes to discussion.

One of the topics, according to their vision, should be the transfer of gas sales to the eastern border. But this already looks like nonsense, because without the consent of Gazprom, the transfer of the point of sale of gas, which opens the way for suppliers from Central Asia, is impossible. Ukraine has been talking about this for more than ten years, even trying to push through the solution of this issue in the Stockholm Arbitration, but so far all efforts have been in vain.

The Defense Council plan can find European support only if the EU unanimously agrees with the argument that Putin is using gas as a political weapon. And, obviously, Zelensky's team has joined the camp that has been trying to sow this idea in Europe for several years. Gazprom, with the help of the Northern and Turkish streams, will reshape the European market, fragmenting the countries: it will supply each of them exactly as much gas as it consumes. This will make it impossible to trade blue fuel between countries in the Baumgarten region (southern Germany, northeastern France, northern Italy, the common market of Austria, Slovakia, Slovenia, southern Poland, Hungary, Ukraine and Moldova) and will lead to limited competition, creating pressure on prices, says the presentation of the Ministry of Energy.

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But the EU does not seem to be unanimously ready to agree with these statements. Hungary has already expressed its disagreement by signing a 15-year gas supply contract with Gazprom. Gas will be supplied to the country via the Turkish Stream, bypassing Ukraine. There is no unity in Europe either on the issue that the only reason for the current rise in prices is only the malicious intent of Russia. Zelensky's camp is trying to convince everyone that Gazprom deliberately provoked the crisis by not creating sufficient reserves in its European subways and refusing to increase supplies through Ukraine. But a number of reputable analysts are convinced that the current price crisis was caused by a number of objective economic reasons, including the outflow of LNG volumes to Asia and the growth in demand for energy resources as a result of the rapid recovery of the economies of countries after the pandemic. The situation was influenced by the growth in demand for gas as a result of the abandonment of coal within the framework of the "green course".

An important signal that Europe is considering Nord Stream 2 exclusively on the economic plane was the conclusion of the German Ministry of Economy. After analyzing the reliability of supplies via Nord Stream 2, they came to the conclusion that the certification of the new gas pipeline does not threaten the security of gas supplies to Germany and the EU. Before making a decision, the department consulted with other countries: Estonia, Italy, Latvia, Lithuania, Austria, Poland, Slovakia, the Czech Republic and Hungary. The findings were forwarded to the Federal Office for Networks (Bundesnetzagentur).

So what about Zelensky and those on whose help he has relied on? What can force Europe to change its point of view and rush to implement the plan? So far, the answer is obvious - nothing. The implementation of this plan will give Europe nothing but unnecessary trouble and new spending. But the Ukrainian authorities seem to have begun to see clearly and realize that Ukraine needs physical volumes of gas in the pipeline. Without them, virtual throttle reverse will be impossible. What was presented as a victory at the conclusion of a transit contract with the Russian Federation, in fact, turned out to be not such a victory at all. In particular, the "pump or pay" clause enshrined in the contract allows Gazprom to easily pay $ 1.3 billion a year before the contract expires, without pumping gas. And then where can Ukraine get it?

From the point of view of the technical capability for imports, Ukraine has a Slovak direction, where we can physically pump about 10 billion cubic meters of gas per year. But buying these volumes will be problematic. Gazprom remains he only gas supplier for the Baumgarten region, which consumes up to 90 billion cubic meters of gas annually, of which Ukraine is a part.

If Gazprom stops pumping physical volumes of gas through Ukraine, we will compete for very limited volumes of gas with our neighbors: Slovakia, Poland, Hungary, Austria, Germany, France and Italy. At the same time, Ukraine will predictably find itself at the end of the food chain, since due to the economic situation it will not be able to pay more for gas than Europeans. The total volume of production in Ukraine does not exceed 20 billion cubic meters with a consumption volume of 30 billion cubic meters - this means that in any case we will have to look for where to buy another 10 billion cubic meters of gas per year. Taking into account the fact that a rapid fall in prices by the spring in the European market is not exactly foreseen, Ukraine will need huge sums of money: gas in Europe costs more than $ 1,000 per thousand cubic meters, and this may not be the limit.

There is almost no hope for our own gas production and its growth in the near future. Ukrgazvydobuvannya, the largest gas producer in the country (about 70% of the total volume), has not been able to increase production for seven years. By the way, according to forecasts of the head of Naftogaz Yuri Vitrenko, this year will not be an exception.

At the same time, the messages about the growth of production that appeared from time to time could be associated with the use of the technological regime "at depletion". A valve is opened at the well to record a record during the reporting period, and then it is closed, which gives a temporary increase in production. This method of operation leads to watering of wells, renders them unusable. If this is true, then the Ukrainians were lied to for many years, and in fact no one thought to discover new fields, drill new wells, at least not exactly in the volumes that Naftogaz drew in the presentations.

Ukraine has tried three times to create a consortium, transferring the Ukrainian gas transportation system to third parties for management, but as a result, the authorities have failed too. Because they tried to build a consortium without the participation of the Russian Federation, which is simply impossible. By the way, now Zelensky says that the idea of ​​the consortium is excellent and he supports it. But, as Viktor Medvedchuk says the idea is completely belated.

It seems that the entire hope was laid on the Americans and their sanctions, which will not allow the completion and launch of Nord Stream 2. And the United States took and concluded a gas deal with the Russian Federation and Germany behind the back of Ukraine.

Obviously, now the hope is the same - the entire plan is based only on the belief that Europe will agree to delay the certification and launch of Nord Stream 2. And if it doesn’t agree? The whole plan will collapse!

It seems that the time has come for the authorities to come to terms with the inevitable reality: the train has left and we should either immediately change the route or stay on the platform.

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