Brussels, 14/01/2015 (Agence Europe) - In the meeting of its chief executive, Alexei Miller, and Energy Union Commissioner Maros Sefcovic in Moscow on Wednesday 14 January, Russian gas group Gazprom was intransigent on both the supply of Russian gas to the EU via Ukraine and definitive cancellation of plans for the South Stream gas pipeline under the Black Sea.
Risk of disruption of transit via Ukraine. Miller warned Sefcovic of the risk of disruption this winter of gas supplies for the EU which pass through Ukraine, despite the 2014-2015 winter package concluded under EU mediation on 30 October to pay off the debt built up by Ukrainian public gas company Naftogaz with Gazprom and to restore Russian gas supplies to Ukraine. This would be as a result of the failure of Ukraine to build up sufficient stores of gas last year. “Risks related to gas transit through Ukraine this winter remain since, due to financial constraints, Ukraine has failed to purchase Russian gas in essential amounts in November-December and has substantially reduced its reserves in underground storage facilities”, Miller stated.
Almost half of the Russian gas consumed in the EU (15% of total consumption) passes through Ukraine and repeated trade disputes over gas between Russia and Ukraine resulted in significant disruption of supplies of Russian gas to the EU in 2006 and 2009. To maintain the transit, Ukraine has underground storage centres but these were not fully filled by Kiev after Gazprom suspended its supply to Ukraine in June of last year, following the country's non-payment of its outstanding gas debt. After bitter negotiations, Russia and Ukraine reached a provisional gas agreement which will expire at the end of March and which is dependent on payment by Naftogaz of part of the money it owes ($3.1 billion) to Gazprom, which is calling for repayment of a total amount of $5.3 billion and agreed to go to the Court of Arbitration in Stockholm to recover the outstanding $2.2 billion. Gazprom pledged to supply gas to Ukraine until March 2015 at a price lower than what was being asked following the price hike after the regime change in Kiev, with Naftogaz promising to pay for this supply monthly in advance.
South Stream definitively finished. Gazprom also confirmed to Sefcovic that the South Stream gas pipeline project had been cancelled, suggesting the EU put in place its own infrastructure across Turkey, with which Russia will build a new pipeline linking the two countries under the Black Sea. “The 'Turkish Stream' is the only route to deliver the 63 billion cubic metres of Russian gas currently transiting through Ukraine. There are no other options”, warned Miller.
After months of tension between the EU and Russia, with the crisis in the east of Ukraine, Russian President Vladimir Putin announced during a visit to Ankara on 1 December that South Stream had been cancelled. The reason for this decision, he said, was Bulgaria's refusal to approve the construction of the project on its territory because it failed to comply with EU law. South Stream, led by Gazprom and with the involvement of several European energy groups, was to link Russia and Bulgaria under the Black Sea, avoiding Ukraine, and carry 63 billion cubic metres of gas per year to the EU through a southern line to Italy via Greece and a northern line to Austria, Croatia and Slovenia via Serbia and Hungary. In its place, Russia now plans to create a new supply channel to Turkey, which it already supplies through the Black Sea by means of the Blue Stream pipeline, and make Turkey a major transit centre for Russian gas.
“We have informed our European partners, and now it is up to them to put in place the necessary infrastructure starting from the Turkish-Greek border. Our partners have several years to carry it out, at best. This is a very tight schedule” stated Miller, opining that work “should be initiated today”. “Otherwise, these gas volumes might find their way to other markets”, he warned. (EH)