Sunday, 2 November 2014

Why should Slovakian Gas Transmission System Operator care so much about Ukraine?

Several days ago, Reuters quoted a statement made by the head of Slovakia's pipeline operator Eustream Tomas Marecek with regard to a construction of the South Stream Pipeline through the Black Sea. This statement attracted attention because for the first time one of the major managers of the Slovakia's business officially stressed his support for the Brussels policy blocking the implementation of this pipeline. As the main argument, Tomas Marecek indicated his concern for Ukraine and its ability for reaching, as they say, their "European choice". In particular, he said that approval of Russia's South Stream pipeline would send a message to Ukraine that the European Union is not ready to support its ambitions to lean toward the West and does not see it as a reliable gas transporter.

Obviously, Tomas Marecek have not read blogs like mine, where we are considering verifiable information about the problems of gas transit to Europe and are raising questions, most of which are often simply ignored in our countries. Alternatively, I would say that probably there is no need for him to be acquainted with this information if he is already aware of a real situation, but does not show it because of some specific reasons.

We have already clarified the circumstances influencing the reliability of Ukraine as a transit country. Usually a public opinion on such kind of reliability can depend on subjective assessments of experts and statements of politicians and businessmen. As to a public opinion on such kind of reliability usually it depends on subjective assessments of experts and statements of politicians and businessmen. And the Ukraine's actual ability of ensuring reliable gas transit from the Russian border to the EU borders are determined mainly by the existing level of management and technical condition of Ukraine's gas transportation system (GTS).

It is important pointed out that present management of Ukraine's GTS conducted by the state administration is now publicly characterized as much by unfair practices of agreements implementation  and manipulation of commitments already signed contracts. Present Kiev authorities adduce an illegal offtake from transit gas envisaged for Europe as allegedly one of possible ways in their public policy making. Only now, they just officially become calling it as "impossibility to guarantee a trouble-free transit."

The situation appears from bad to worse for the reliability of Ukraine as a transit country in terms of technical condition of its GTS. This system was built in the Soviet Union times and since then has already exhausted its resources and according to current standards requires a thorough renovation of the main equipment. But there is no finance for these purposes in the country under conditions of economic collapse as well as unjustified hopes for prompt foreign investments for the same reasons.
Therefore, the transit capacity of Ukraine's GTS has been objectively falling for long time. The nominal capacity of the Ukraine’s gas transportation system had been kept stable for a certain period after its commissioning in the last century and on the border with the EU countries it amounted to about 140 bcm per year. However, in 2007 through Ukrainian pipelines to Europe it was already transported only 115 bcm of Russian gas, and in 2012 the volume of gas transit through Ukrainian pipelines to Europe went down to 81 bcm of Russian gas.

It is important that, despite the downfall, consumers in our European countries have received gas from Russia in full due to the diversification of routes of Russian gas supplies particularly by means of putting into operation the Nord Stream gas pipeline.

Gas industry professionals in Slovakia, which is also a close neighbor and a partner of Ukraine, are most likely familiar with the given facts. Then what goals does the head of the Slovak pipeline operator Eustream pursue defending the role of Ukraine as a transit country for Russian gas to Europe?
There is an answer in the same statement of Tomas Marecek for Reuters, in which he emphasized that no objection to South Stream would be needed if the project represented an additional transit route that did not replace the Ukrainian system and was justified by demand for new gas in Europe.
This phrase openly indicates that the Slovakian pipeline operator really bothers not the situation in Ukraine, but a probability of cancelling Russian gas transit through Slovakia, or in other words, it is a reaction against an appearing threat of losing this lucrative business.

And here is a big deal to lose since the total volume of Russian gas transit through the territory of Slovakia amounts to 35 bcm a year as well as the contracts stipulating the terms of gas transit were signed in 2008 for a period of 20 years.

Moreover, as it is already mentioned in previous posts, a reverse gas from Slovakia in fact is Russian gas circulating around an annular pipeline system created at the Slovak-Ukrainian border. In this case, a reverse gas from the Slovak side is recycled back to the transit pipeline system directed to Slovakia and Ukraine siphons gas out the transit pipelines basing on mutual offset of liabilities at a distance of thousands of kilometers away from the border. As a matter of fact it is physically impossible to deliver gas from Europe to Ukraine, because all gas flows are streaming in West direction with the exception of the short cross-border gas pipeline Vojany-Uzhgorod near Veľké Kapušany in Slovakia specially constructed for reverse operations on which I wrote in September.
Executing such a "reverse carousel" is another profitable business project for Slovakia. Meanwhile Slovakia's main concern in this case is reliable payments especially taking into consideration that actually Ukraine is a bankrupt up to its neck in debt. That is why even before commencing the reverse project in September Slovakia had demanded financial guarantees from the European Commission confirming that its reverse gas deliveries to Ukraine would be paid properly.

The payment issue, obviously, still is a matter of concern for Slovakia. At the highest level Prime Minister Robert Fico reaffirmed Slovakia's opposition to chip in for the Ukrainian debts. And at the same time he pointed out that any financial assistance for Kiev with gas supplies should be performed only on a commercial basis.

That way, both Slovakia's government and its pipeline operator Eustream reasonably care about their economic and business interests. However, they are apparently well aware that this business indeed requires gas supplies from Russia, without which there would be neither transit to Europe nor reverse to Ukraine.

It would be extremely important that our Europe as a whole understands the same and especially countries importing Russian gas for their social and economic needs as well as other countries that are just getting ready for that debating the prospects and opportunities for South Stream gas pipeline.
The Slovak experience eventually reveals that such a reverse technology by means of a circular pumping of the same gas on the border and mutual offset of liabilities only creates an illusion of enhancing energy security if there are no stable supplies of gas to the European market.

Why not to cool down a real reverse euphoria that invaded in minds of our politicians dealing with the EU energy strategy? And why not to suggest them to stop so persistently reversing from our countries the existing streams of gas supplies as well as the international relations that have been developed step by step for a long time in previous decades to ensure gas supplies from Russia to our European market ?

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