Page 5 - FSUOGM Week 01 2020

FSUOGM COMMENTARY FSUOGM
Russia, meanwhile, can rest assured that its European gas supplies are safe from interrup- tion. Gazprom has had enough difficulty over the past year fending off competition in Europe from low-cost LNG supplies flooding the continent.
The transit deal represents a compromise both in terms of volumes and duration. Russia earlier said it wanted a one-year deal, sending as little as 20-30 bcm per year via Ukraine. Kyiv naturally wanted committed volumes similar to the current level, and a contract lasting 10 years.
Removing the main obstacle to the new deal’s implementation, Ukraine completed the unbundling of its pipeline system on January 2, transferring operational control from Naftogaz to GTSOU.
“This was the most significant reform in the energy sector in the history of independ- ent Ukraine,” Naftogaz CEO Andriy Kobolyev commented. “Our country has complied with the requirements of the Third Energy Package and has demonstrated that it is a responsible and reliable partner for the EU.”
Nord Stream 2
Ukraine might have secured much less attractive terms from Russia were it not for delays to Gaz- prom’s 55 bcm per year Nord Stream 2 pipeline, a project aimed at helping Moscow divert transit volumes away from Ukraine.
Nord Stream 2 was initially due to start up at the end of last year. But while construction mostly proceeded on schedule, it was held up towards the end by Denmark’s delay in issuing necessary permits covering its route through Danish waters. These permits finally arrived in October.
The US then imposed sanctions on the pro- ject in December 21, prohibiting companies from laying the pipeline. Swiss-based Allseas promptly suspended its pipe-laying activities, saying it needed to consult with the authorities. It has since said it has no plans for resuming its operations.
Russia has said it has its own vessel to con- tinue Nord Stream 2’s construction, now more than 90% complete, but its mobilisation will take time.
Washington had initially hoped to bring the
project to a halt altogether, both to put further pressure on Russia’s economy and defend the market share of its own LNG exports. US offi- cials later conceded it was “too late” to stop Nord Stream 2 from being realised.
The Kremlin responded angrily to the new sanctions. The Russian Foreign Ministry said in a statement that the US was seeking to deprive its European allies of “guaranteed sources of sup- ply” of energy from Russia.
“Russia has implemented and will continue to implement its economic projects regardless of anyone’s sanctions,” the ministry said, according to TASS.
The US restrictions also apply to TurkStream, another Russian pipeline that began delivering gas to southern Europe this year.
Russia’s ability to reduce transit via Ukraine was also impeded by an EU Court of Justice ruling in September that reintroduced a cap on Gazprom’s use of the Opal pipeline in Germany, which handles gas from the original 55 bcm per year Nord Stream.
What next?
The outstanding issue is the possible resump- tion of Russian gas sales to Ukraine, which were halted more than four years ago.
Ukraine has relied instead on a mix of domestic supply and imports from its EU neigh- bours, even though most of the latter is resold Siberian gas. Ukrainian gas production is on an upward trajectory, but it is rising more slowly than hoped. Meanwhile supplies from Poland, Slovakia and Hungary are costlier than Russian gas.
Ukraine’s reluctance to resume deliveries from Russia is therefore political. Supplies will likely restart only when there has been suffi- cient improvement in relations between the two countries, which have been hostile since Mos- cow’s Crimea annexation and subsequent back- ing of eastern Ukrainian separatists. While the latest peace talks between the pair held in Paris in December did not yield any breakthroughs, the first summit involving national leaders in more than three years was nevertheless impor- tant. ™
The Nord Stream 2 pipeline. Source: Gazprom
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