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Ukrainian gas handling system smoothly switched to euthanasia mode

Author : Oleksiy Kushch

Source : 112 Ukraine

Ukraine has literally “canalized” its transit potential as a hub country, capable of earning up to 15% of GDP on logistic margin
20:46, 13 January 2020

Open source

While Ukrainian politicians, both previous and current ones, warmed up their sit-upons at the beaches in Oman, Seychelles or somewhere northward, other leaders built new strategic constructs and literally “canalized” our transit potential as a hub country, capable of earning up to 15% of GDP on logistic margin, stubbornly giving away and squandering this potential in favor of more efficient neighbors.

Related: Video of Poroshenko's yacht at Seychelles appears on web

I am talking about the official opening of the TurkStream, which Russia uses to bypass Ukraine when transporting its gas. The official celebrations were attended by Russian President Vladimir Putin, as well as the leaders of Serbia, Bulgaria. The latter looked sad. Looking at Turkish President Erdogan, he seemed to be thinking: "I should have been in his place." The story with the southern, Black Sea bypass route began before 2014, and the planned South Stream was supposed to go through the bottom of the Black Sea to Bulgaria. But due to the annexation of the Crimea and Donbas war, Europe decided to demonstrate its solidarity with Ukraine in the form of freezing this project. Bulgaria had to refuse to become a South European gas hub, and Turkey safely took its place, and South Stream smoothly transformed into TurkStream. Our authorities had an unsuccessful fight against Nord Stream-2, failing to notice (or pretending not to notice) the same transit threat in the south. Erdogan very elegantly exchanged the religious theme, which the Ukrainian authorities were concerned about, for the more vital in the form of the status of a hub country.

The new gas pipeline has a design capacity of 31.5 billion cubic meters per year and consists of two threads: the first design capacity of 15.75 billion cubic meters, which is designed to supply gas to Turkey itself, and the second with the same capacity parameters for gas supplies to the countries of southern and southeastern Europe, in particular to Greece, Bulgaria, and the Balkans. In subsequent years, the energy carrier will also go to Hungary and Slovakia along this route.

Related: TurkStream launch causes reduction of gas transit through Ukraine by 15 billion cubic meters

Turkish President Erdogan has already announced that his country will soon turn into a new gas hub for southern Europe. Turkey consumes about 50-55 billion cubic meters of gas annually with a growth prospect of up to 60 billion and ranks fourth in Europe in energy consumption. Part of the existing deficit in the energy balance will be closed by the Turkish Stream under construction with a planned capacity of more than 30 billion cubic meters. This is in addition to the Blue Stream (16 billion cubic meters). Turkey carefully monitors the diversification of energy risks, which is why the share of pipe gas in imports is decreasing, while LNG is growing, and the share of the Russian Federation in total deliveries is in the range of 50% (+/-). In the near future, the Turkish economy and population will consume up to 30 billion cubic meters of Russian natural gas. Thus, in 2020, Turkey will have a transit surplus of up to 15-20 billion cubic meters in the energy balance.

And this does not take into account the prospects of launching a new Caspian gas route, the so-called Southern Gas Corridor from the Shah Deniz field in Azerbaijan. After the construction of the TANAP South European gas pipeline is completed, EU countries will be able to receive an additional 10 billion cubic meters of Caspian gas.

In this context, the participation of our delegation in 2018 in the celebrations marking the opening of the first stage of TANAP is surprising. For Turkey, this is another step towards building its transnational gas hub and an additional source of “withdrawing” transit margins, for Azerbaijan - new markets, for the Balkan countries - alternative directions for energy supplies. And what will this project bring to our country? Even taking into account the prospects of expanding the capacity of this alternative direction to 30 billion cubic meterб all its volumes have already been divided between the European countries, and Ukraine is out of this list. The only thing we are hoping for is to reduce gas consumption in the EU and on warm winters. In the bottom line, the opening of southern transit routes (TurkStream + TANAP) will result in a loss of transit revenues of the Ukrainian GTS in the amount of 300 million to 1 billion dollars per year.

Related: Bulgaria signs contract for construction of TurkStream gas pipeline branch bypassing Ukraine

While Russians and Europeans are looking for opportunities to earn extra money or hedge the energy risks of their countries through Turkey, we are still busy proving a mechanical scheme for pulling ourselves out of a swamp, justifying the “profitability” of transit of 40 billion cubic meters of gas via our gas transportation system  instead of 95-100 billion per year.

The key problem here is that our officials pretend that they do not understand the logistics strategy, for us, any transit corridor is a loss of transit margin and a decrease in logistics potential. In monetary terms, it means minus billions of dollars received for gas transit or a few percent of GDP. And it doesn’t matter where the gas comes from (bypassing Ukraine) - from the Russian Federation or Azerbaijan. If the entry points to the European GTS are in another country, this is another minus to our transit karma.

Related: TurkStream: Who profits, who loses out?

At one time, Ukraine voiced several arguments that turned it from an object of geopolitical manipulation into a serious player on the world chessboard. This is a missile strategic shield, nuclear weapons, and a gas transportation system. The latter was especially worrying for the United States, which repeatedly tried to impose its sanctions policy on the Soviet Union to Europeans and block the construction of the Urengoy-Pomary-Uzhgorod gas pipeline, as well as the Druzhba pipeline. No one was able to exchange a strategic missile shield and nuclear weapons for investments and trade preferences that would ensure a prosperous future for more than one generation of Ukrainians. And the domestic gas transportation system smoothly switched to a mode of soft “euthanasia.”

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