January 23, 2018

Turmoil in Central Europe

Wednesday, April 16, 2014

EU looks to break Ukraine-Russia gas knot

Members of the Ukrainian Interior Ministry walk past a military helicopter and armoured personnel carriers at a checkpoint near the town of Izium, eastern Ukraine, yesterday.

Europe faces daunting task to avoid violating binding contracts between the countries

VELKE KAPUSANY — Unprecedented talks across the European Union yesterday showed it scrambling for solutions on the ground to break its dependence on Russian gas and help supply Ukraine.

The EU faces a daunting task in quickly overcoming a mountain of logistical challenges, avoiding breaking binding contracts and making sure Ukraine does pay up for gas.

Russia supplies 30 percent of Europe’s gas needs. It has threatened to cut off supplies to Ukraine because of debts reviving fears of a repeat of the supply crises across Europe of 2007 and 2009.

Moscow has also nearly doubled the natural gas price it charges Ukraine, tearing up a discount agreed in the past and stoking fears of a supply cut as Kiev owes Russian exporter Gazprom more than US$2 billion. Gazprom has threatened to cut supplies if Ukraine continues to fail to pay its bills and has warned of a possible reduction in onward deliveries to Europe.

Meanwhile, Ukrainian state energy company Naftogaz said yesterday it is ready to pay in full for imported gas from Russia at US$268.5 per 1,000 cubic metres, much lower than US$485 Moscow has set for the second quarter.

Naftogaz said it had sent a similar proposal to Russia’s state-controlled gas producer Gazprom on April 4, but has not received an answer.

As relations worsen between Kiev and Moscow, European gas customers fear that Russia could cut off exports to Ukraine, which is an important transit route for natural gas to the European Union.

Following previous gas rows with Kiev, Russia has invested billions of dollars in new pipelines, including Nord Stream, which brings additional gas to Germany bypassing Ukraine.

South Stream is planned to pump gas into Bulgaria and from there further into the EU by the end of the decade.

Gazprom’s partner in the project, Italy’s Eni, has said the future of South Stream has been put in question by the escalating dispute over Ukraine. The EU has also postponed clearing the project.

Despite the crisis in relations, the consortium running the South Stream project said it would start laying the first stretch of pipes this autumn.

Relief for Ukraine

Offering some relief for Ukraine, Germany’s RWE began deliveries of natural gas yesterday, marking an initial step in EU efforts to boost supplies to Kiev.

RWE said it is a mixture of gas supplies from many sources, and Ukraine could get as much as 10 billion cubic metres (bcm) of gas per year under a framework 2012 agreement.

That would be a big boost to Kiew, allowing it to cut Russian gas imports by a third. The problem would be to deliver the gas to Ukraine, which has annual gas consumption of 55 bcm.

In addition, Slovakia is the EU’s best-placed member to pump gas to Ukraine but reversing flows along any of the four pipelines that take Russian gas to it via Ukraine would require an agreement that doing so does not violate current contracts with Gazprom.

Slovakia, Ukraine’s best hope of getting gas from Europe if the Kremlin halts supply, said it might help by reopening a small pipeline but stopped short of agreeing to reverse the flow of major links that take Russian gas to the European Union.

Yesterday the Slovak and Ukrainian economy ministers, during talks near the border between their two countries, discussed reopening a disused pipeline to take some gas out of a main East-West line and loop it back into Ukraine.

But Slovakia failed to agree to Kiev’s calls for it to reverse the flow of one of four main international pipeline carrying Russian gas so that the fuel goes straight back into Ukraine, its minister, Tomas Malatinsky, said during a break in the talks with Ukrainian counterpart Yuri Prodan. The Slovaks worry that doing so might violate their contracts with Gazprom.

But by taking gas out of the main pipeline once it is already in Slovakia and contractually handed over to buyers on the Slovak side, the country’s pipeline operator Eustream thinks it can supply gas to Ukraine without violating the contracts.

A spokesman for the Slovak Economy Ministry said after the talks ended that they agreed to sign a memorandum on April 28.

Herald with AP, Reuters

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