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27.02.12
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Bluff And Bluster
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By Tai Adelaja
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Ukrainian Prime Minister Mykola Azarov tried on Friday to shrug off the Kremlin's latest threat to push his country out of the Russian gas transit business. Tension in the Russian-Ukrainian gas dispute escalated last week when Russia’s natural gas export monopoly Gazprom said Russia will completely eliminate its reliance on Ukraine to transit its gas to Europe as soon as its planned pipeline projects are completed. Ukraine has dismissed the threat as "nothing terrible," saying it has learned to respond calmly to outbursts and antics from Moscow.
During a meeting with Russian President Dmitry Medvedev last week, Gazprom’s Head Alexei Miller blamed Ukraine for shortages reported by its customers in Europe at the peak of a cold spell in early February. "Significant volumes of gas shipped through Ukraine failed to reach Europe," Miller said. "On certain days up to 40 million cubic meters of gas were kept in Ukraine, and this undoubtedly brought both financial and reputational losses for Gazprom." To guard against future transit risk, Miller said Gazprom will accelerate the construction of the proposed South Stream pipelines, designed to carry gas across the Black Sea to central and south Europe while bypassing Ukraine.
Ukrainian state energy company Naftogaz has since denied that it “filched” Russian gas from transit pipelines bound for Europe, stressing that it “has not taken a single cubic meter of gas from the volumes that were shipped by Gazprom to Europe." Nevertheless, Miller told President Dmitry Medvedev that the construction of South Stream, which was initially planned to begin in 2013, will now take off in December of this year. "This abnormally cold winter, which caused a sharp increase in demand for Russian gas in Europe, is another confirmation that South Stream must and will be built," Miller said. "Europe needs new corridors for Russian gas supplies without transit intermediaries."
Ukraine has been seeking a reduction in the above-the-market price it pays for Russian gas and Gazprom has indicated that it would make significant gas price cuts in exchange for full control over Naftogaz Ukrainy, Ukraine's gas transportation system. However, in a reversal, Gazprom CEO told Russian Prime Minister Vladimir Putin last month that the costs of Ukraine’s gas transport system may be greater than constructing the South Stream pipeline. Miller estimated the cost of the Ukrainian transport system at around $20 billion, while the South Stream project is estimated to cost $16.5 billion, with $10 billion of this spent on offshore construction and the remaining $6.5 billion to be spent on onshore construction. Miller also said that upgrading the money-losing Ukrainian transport system could cost anything from $3 billion to $8 billion.
Gazprom says it still plans to launch the first stage of the South Stream in 2015 with a capacity of 63 billion cubic meters a year, expected to reach full capacity in 2018. Ukraine may lose between $350 million and $400 million annually when the first stage of the pipeline is launched, business news Web site BFM.ru reported on Friday, citing unnamed Ukrainian experts. The experts also estimated that their country would only lose between $700 and $800 million when the pipeline runs at full capacity in 2018. Other experts say, however, that Ukraine will lose up to $2.6 billion annually – the same amount that the country received for natural gas transit through its territory last year.
Some experts have warned, however, that rushing the construction of South Stream to circumvent Ukraine may be an unaffordable option for Gazprom. While Nord Stream, which began delivering Russian gas across the Baltic Sea to Germany last year, cost $10 billion, South Stream is expected to cost the gas monopoly around $20.8 billion, according to experts. The European Union also seems cool to the plan, saying on Friday that it still considers the Ukrainian gas transporting system as one of the main pipelines for delivering gas to Europe. "The unique geographical location of Ukraine and its gas storage capacities mean that Ukraine can offer increased flexibility of gas supply," the European Commission Spokesperson on energy Marlene Holzner said on Friday, Interfax Ukraine reported. “The European Commission is convinced that Ukraine needs to elaborate a long-term strategy to ensure its position as the leading gas transporting country,” Holzner said, adding that there was no doubt Ukrainian gas transporting system is important for the EU and the greater European continent.
But since such assurances are unlikely to deter Gazprom from augmenting the pressure, Ukraine has been weighing its options. Azarov said earlier that Ukraine might consider turning to coal for its energy requirements, as it could ill-afford the exorbitant prices it pays for natural gas imports from Russia. And on Friday the State Geological Service announced tenders for the exploration and development of two large shale gas deposits, hoping to attract bids from global energy majors and reduce reliance on Russian gas. The country also appeared to have learned a lesson or two about dealing with threats from Moscow. "Let's not get worked up on this," Azarov said on Friday, referring to the latest threat from Moscow. “As I've always said: ‘God help you [Russia].’ Ukraine will find a way out of this situation." |
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