Page 5 - FSUOGM Week 38 2019

FSUOGM COMMENTARY FSUOGM
Russian pipeline flows was immediate, with Opal volumes falling by 260 GWh on September 14, the day after the order from German regula- tors, equivalent to 8.5 bcm per year. Russia had to divert supplies to NEL, another pipeline fed with Nord Stream gas, as well as expanding shipments through Ukraine.
Naturally Ukraine, which earns $3bn in fees from transiting Russian gas, wants to keep sup- ply volumes as high as possible for as long as possible. Brussels also supports Kyiv’s position, eager to avoid any strain on Ukraine’s economy that could derail its reforms.
Deal or no deal
Ultimately all sides need a deal, making com- promise likely. Both Moscow and Kyiv would be badly hurt financially if Ukrainian transit was suddenly disrupted on January 1, and the EU’s energy security would be put at risk.
At the same time, the hurdles to reaching an agreement are great. Despite the recent thaw in Ukrainian-Russian relations, there remains a lot of bad blood between the pair, and any sudden escalation in the Donbass conflict could easily bring talks to a standstill.
Russia has also insisted in the past that any outstanding legal disputes with Ukraine, includ- ing Naftogaz’ efforts to collect $2.6bn owed by
Gazprom for past contractual violations, must be settled before a transit agreement can be reached. Ukraine is also in the middle of reforming its energy regulations to bring them in line with EU laws, including the unbundling of its gas pipe- line network, currently operated by Naftogaz. This unbundling is not due to take place until January at the earliest, and future tariffs would be set according to EU methodology. Until these reforms are complete, it is harder for Ukraine and Russia to agree on the form a new contract
would take.
In the meantime, all sides are implementing
contingency measures. Ukraine on Septem- ber 24 met its target of having 20 bcm of gas in underground storage before the start of the heating season in mid-October, up from the 16.9 bcm it had accumulated at the same time last year. It aims to store a further 0.5 bcm before the middle of next month. Gas reserves across the EU have reached a record high, as Gazprom and other operators look to create a buffer against any supply outages.
Ukraine and Moldova also entered into a deal in August to upgrade metering stations at their shared border to reverse-flow up to 1.5 bcm per year of Romanian gas via the Trans-Balkan pipeline that runs through Ukraine, in the event Russia stops using the route itself. ™
The route of the Nord Stream 2 pipeline. Source: Gazprom.
Ukraine’s gas storage usage as of September 21. Source: Naftogaz.
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