Why does the snowy Acropolis of Athens become a lighthouse showing the way to the gas suppliers to Southern Europe?

Several media, including Reuters, reported that in January Central and South East Europe suffered an atypical cold spell and snowstorms, unprecedented in the recent history, and parts of Greece was covered in rare snow with temperatures dipping to -20 degrees Celsius. Snow also fell in Athens. In the Greek town of Alonissos at Thessaly region 130 km North of Athens, a snow covering thickness reached over 2.5 m. There were enthusiastic comments in http://uk.businessinsider.com and some other websites that now the Acropolis in Greece looks like a winter wonderland. However, it is evident that Greek population as well as many tens of thousands of refugees seeking asylum in this country cannot be happy about the advent of "winter tale". When Greece is buried in deep snow, it more remind an image to match a verse drama "Hellas" by Percy Bysshe Shelley.

Even the millennial history of Greece ever hardly heard of citizens in this southern, nowadays frozen country do ask Greek Santa Claus - Agios Vassilis for a Christmas gift to bring warmth into their homes this winter. While hoping for Agios Vassilis generosity now Greek people obviously must themselves better comprehend a tangle of new energy projects as well as the interplay of political intrigue around them especially distinguishing modern development of the energy market in South East Europe. It's almost like we're being forced by the freezing weather into more careful looking at the energy future of Greece.

Hellenic energy horizons - looking from the present towards the future

According to BP Statistical Review of World Energy 2016, Greece's energy supply comes mainly from fossil fuels – oil and coal. As shown in the graph below natural gas is the third largest energy source whose consumption amounted to 2.5 million tons of oil equivalent in 2015 or 9.5% of total energy consumption in Greece. In accordance with market trends in Europe, natural gas together with renewables will enhance their role in development of the Greek energy sector.

 

Meanwhile, the development of gas consumption in Greece followed the path that, as the graph above shows, resembles more a winding road on a steep mountain slope in Thessaly than an ascent to leading positions in the Greece’s energy market. In 2011 Greece experienced the highest level of gas consumption of 4.4 bcm but thereafter for three years it drastically dropped by about 38% till 2.7 – 2.8 bcm in 2014 - 2015.

Preliminary estimates suggest that in 2016 gas consumption in Greece demonstrated a notable progress. As reported by www.worldenergynews.gr, according to DEPA Group assessments, annual consumption of gas should exceed 4 bcm. Now the question is whether the gas distribution infrastructure in the domestic market of Greece is ready to handle further increase in gas demand. Moreover, of course, it is not only cold spells and snowstorms in winter generate this demand. Natural gas is equally necessary for heating and cooling during different seasons over a year because air conditioners are powered by electricity, which, largely, is produced from gas.

At the same time, there is another, even more complex and long-term questions: where should this energy marketable for all seasons come from? What kind of suppliers should fill in tomorrow the Greece's gas transport system?

 

 

 

 

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Why should Bulgarian gas pawn not lose hope yet to get another chance of becoming a new hub queen in South Eastern Europe?

Looking back at the expiring year to see once again a dramatic picture of EU gas market development filled with conflicts of interest we can note a number of important events, which triggered the transformation of priorities and put forward new objectives. One of such events occurred even earlier - two years ago when in December 2014 Russia made a decision to abandon the South Stream gas pipeline project blaming Bulgaria for delays in the issuing of necessary permits for the pipeline construction and announcing that under the circumstances it was not possible to continue the project implementation.

That event was welcomed openly in Brussels, Washington DC and some other capitals. By contrast, in South Eastern European countries the failure of the South Stream implementation caused a wave of mixed emotions when there was a prevailing sense that they had been falling victim to missed opportunities as well as a growing uncertainty in future development of their gas markets. Yet such an unenthusiastic response can be accounted for the fact that these countries have long been at the forefront in enhancing of their gas supplies, but no matter they are the most dependent, they were subjected to this painful blow.

Many of us have become aware that Sofia and Brussels did not share equally the primary responsibility to create the conditions that proved unacceptable for the South Stream project continuation. Very essential for future steps towards the integration of the gas market in South Eastern Europe was distinctly different decisions made by the European Commission with regard to the only two really existing projects that had been already commenced for provision of gas imports by pipelines to the EU. Those projects are the Trans-Adriatic pipeline (TAP) and the South Stream pipeline of which just the first one obtained an exemption from third party access to its pipe required by the Third Energy Package. As a result, the European Commission added another page in the historic way from the dusk of WTO that has been idealistically focused on the non-discrimination principle as applied in the context of trade in goods till the current dawn of global protectionism.

A common way to somehow extinguish the growing frustration and other negative reactions is a launch of new promises and initiatives. Therefore, it is no coincidence that right after the abrupt cancellation of South Stream project, Bulgaria's political leaders urged their country to create a modern gas hub. Bulgaria wants to build a European-scale gas storage facility to replace the canceled South Stream gas pipeline, and become ‘number one’ in terms of diversification, said Prime Minister Boiko Borisov in December 2014.

Slow and uncertain steps towards the implementation of the gas hub

One whole year had passed before in December 2015 Bulgaria and the EU Commission agreed to establish a joint working group to support the development of a gas hub in Bulgaria designed to serve the Balkan region. It was expected that the working group should begin with an assessment of legal, regulatory and financial requirements for this project. However, the gas hub initiative proceeded slowly unless to say that there was no any appreciable progress in its promotion.

In particular, this could be seen in results of the meeting of the Central Eastern and South-Eastern European Gas Connectivity High Level Working Group (CESEC) meeting, which took place in Dubrovnik on 10 July 2015. The meeting was devoted to integration of the EU and Energy Community energy markets. EU Commission Vice-President for Energy Union Maroš Šefčovič, EU Commissioner for Climate Action and Energy Miguel Arias Cañete and by the Energy Ministers and their representatives from 15 European countries (including Austria, Bulgaria, Croatia, Greece, Hungary, Italy, and others) signed the Memorandum of Understanding and Action Plan with project list in the appendix. There were 21 projects listed in the appendix that were considered to provide benefit to the region, particularly in terms of contributing to security of supply.

In fact, three projects in Bulgaria were given a prominent place in the list of CESEC Priority projects, among which are two new interconnectors - the interconnector Greece-Bulgaria (IGB) and the interconnector Bulgaria-Serbia (IBS). At the same time, no direct reference was made to the Balkan gas hub project in these outcome documents, but instead of it, there was a rather general task - "Phased Bulgarian system reinforcement (necessary to allow utilization of existing interconnections and interconnections being developed)."

Implementation of priority interconnector’s projects of course would improve conditions for the creation the Balkan gas hub. However, a well-developed gas transportation infrastructure actually is important, but it is not the sole condition, which is vital to making the gas hub project feasible.

A European-scale gas hub has to serve transit flows of gas currently lacking in Bulgaria

It is noteworthy that neither the majority of politicians nor least of all representatives of the expert community try to ignore the problem of accessibility to one of main primary energy sources - natural gas. It means that Bulgaria must gain access to gas sources and receive sufficient supplies to carry out all the gas hub operations competitively for local market and especially for the EU neighboring countries.

 

There was a recent attempt to look ahead to this challenge within the framework of the Investors Round Table held in Varna on 4-6 September 2016, where company Bulgartransgaz presented the concept for the construction of the Balkan gas hub on the territory of Bulgaria. In his address to participants of this event Klaus-Dieter Borchardt, Director Internal Energy Market at the EU Commission's Directorate-General for Energy underlined the importance of the Balkan gas hub for the European integrated market. "If we manage to attract considerable amounts of natural gas supplies the Balkan gas hub will become competitive with the already existing hubs in Germany, Austria and the Netherlands," added Borchardt.

The EU model for diversifying the gas supplies to Central and Eastern Europe and a competitive gas hub

"Each Member State in the region should have access to at least three different sources of gas," stated many times the senior European Commission officials, noting especially that it important for security of energy supply. At first sight, the EU Commission's suggestion should not cause any objections. However, in practice the Brussels gas supply model based on "at least three different sources of gas" seems idealized too much and far-removed from the reality all around us. If certain EU member states now do not have enough gas even to meet their growing domestic demand not to mention reaching and/or maintaining high levels of gas hub competitiveness then committing themselves to provide three more or less equal sources of gas supplies. In fact, it just may increase the risk that the implementation of the Balkan gas hub project would be postponed for many years.

Look at the map above - isn't that what reminds us a chessboard? There are chess figures like gas projects that generally can move in any direction. The only thing is that on the European energy "board" efficient gas volumes now can come from the east only as European gas trading and utility companies well know.

There are not too many projects, which are capable to keep a window of opportunity for Bulgaria's gas imports open, these include:

The Trans-Balkan pipeline has entry capacity 24.7 bcm, 99% of which comes from Russia and a very small part from Romania. It is important that a completion of the Turkish stream pipeline in December 2019 should reduce significantly the need for the entry capacity of the Trans-Balkan gas pipeline. It is planned that a new gas pipeline running from Southern Russia across the Black Sea to Turkish Thrace will replace the transit of Russian gas to Turkey through the territory of Ukraine, the volume of which in 2015 amounted to 12.7 bcm. Moreover, the current transit contract between Ukraine and Russia will expire in 2020 and its extension is hardly possible because of growing tension between the two countries. According to Gazprom, even though Ukraine and Russia manage to sign a new transit contract, gas transit across Ukraine would be reduced to 10–15 bcm, about half of which will be transported by Trans-Balkan pipeline to Bulgaria, Greece and FYROM. Meanwhile it is an undeniable fact that Ukraine’s Naftogaz are apparently already preparing for reduction of gas transit since Naftogaz refused to buy equipment worth 156 million USD for modernizing three gas-compressor stations that provide gas transit in southbound direction via Romania to Bulgaria.

The Turkish offshore pipeline currently under construction will consist of two parallel pipelines with a capacity of 15.75 bcm each. The first pipeline is intended for gas supplies to Turkey. It is planned that the route of the second pipeline will continue to its end point at the Turkish town of Ipsala, near the Greek border to deliver 15.75 bcm of gas to Greece, Italy and the Balkan countries. As you can see in the map above, the routes of the second pipeline line of the Turkish stream and the existing Trans-Balkan pipeline will cross giving an opportunity of transforming the latter to a reverse mode to supply gas to Bulgaria.

 

The Gas Interconnector Greece-Bulgaria (IGB) will provide a direct link between the Greek GTS and the Bulgarian GTS with an entry point in Komotini and an exit point in Stara Zagora. According to preliminary assessments, the project’s budget is estimated at 240 million Euros, of which 220 million Euros concern construction costs. By means of IGB Bulgaria intends to import gas from Azerbaijan prior to the commissioning of the Trans Adriatic Pipeline (TAP). The 182-kilometre IGB pipeline will carry 3.0 bcm of natural gas annually in its initial stage with a possibility for upgrading up to a maximum capacity of 5 bcm. According to Central and South-Eastern European Gas Connectivity (CESEC) High Level Group information, its construction was planned to start in December 2016 and be completed after two years. One bcm from the Shah Deniz gas field of Azerbaijan will be annually supplied to Bulgaria effective 2020.

A joint initiative of Bulgarian Energy Holding (BEH) and Greek natural gas company Gastrade to prepare a proposal to construct a floating LNG terminal in Alexandroupolis, northern Greece. This new facility would supply gas to Bulgaria via the IGB. Earlier Reuters reported that with an estimated capacity of 6.1 bcm. Alexandroupolis terminal will cost about 370 million Euros and is expected to be operational at the end of 2018.

As for the development of domestic gas E&P, Bulgaria would only be able to count on gas imports because the hopes for its own natural gas deposits have not been fulfilled yet. According to Financial Times, Bulgaria’s annual gas consumption could rise to four bcm in 2020 from roughly three bcm at present, partly because of growing demand from chemical and fertilizer companies. Although the amount of the above-mentioned sources of gas supply corresponds to the model proposed by the European Commission, in terms of volumes they apparently would be enough just to meet the growing internal demand in Bulgaria. Nevertheless, these incoming volumes of gas are clearly insufficient for creation of a European-scale gas hub.

The competitive position of Bulgaria is obviously inferior to Greece and Turkey, which are promoting their interests in gas hubs development relying on the new opportunities ensured by TANAP, TAP and the Turkish Stream pipelines in the near future. Implementation of these projects is going to make these countries main applicants for the crown of hub queen in South Eastern Europe.

However, the presence of other potential candidates does not diminish, but on the contrary may even increase the Bulgaria's chances of seeking a wider market access by means of a national gas hub. The optimistic scenario would be reasonable if the European Commission and Bulgaria considered the situation objectively and acknowledged that in the near future it is not possible to increase the volumes of gas imports up to the level necessary for the Balkan hub operations without adequate expanding of infrastructure capacities to supply much more gas especially from Russia. In August 2016, Bulgaria and Russia took a certain step towards that when the two countries agreed to set up working groups on joint energy projects.

Ultimately the European motivation for creation of the Balkan gas hub should be based on the understanding that development of these gas facilities both in Bulgaria and in the other countries of South Eastern Europe can improve competition in the interests of gas consumers by ensuring the greater availability of gas supplies for all consumers, especially for those most in need at present.

Why does Brussels - a fully-fledged chess grandmaster in the geopolitical game in the gas market of South Eastern Europe resembled a chessboard, instead of treating the EU countries like Bulgaria as a sacrifice, begin really to promote them to the position of hub queens?

There can be little doubt that it would also benefit many other EU countries.

  

 

 

Why is the European Commission willing further to experience the obvious paradox of pursuing contradictory goals, according to which a successful future of the EU Energy Security Strategy becomes too dependent on a very fragile and shaky energy independence of Ukraine?

Brussels' obstinate attempts to lead Ukraine to an alleged energy independence from Russia are something of another apparent paradox. It hardly needs disputing ultimate truth that the required level of energy independence can be achieved only if the necessary measures are being taken by the Government in order to overcome the lack of self-sufficiency in primary and secondary energy resources. A majority of countries are seeking to somehow maintain and develop their own energy potential primarily using its domestic opportunities.

Ukraine is a rare exception to this common rule, since this country has been continually preoccupied with economic and financial crisis as well as continuous political infighting. From the very beginning, Ukraine obtained a very good start-up potential of its energy sector. Historically, Ukraine at once inherited the most developed part of the Soviet energy industry, which, for example, included four nuclear power plants with 15 reactors. There was Europe’s largest nuclear power plant in Zaporozhye amongst them. It is regrettable that now Ukraine illustrates the old French proverb, "soon gained soon squandered."

Speaking at the VI National Expert Forum in Kiev Ivan Plachkov, the president of the All-Ukrainian Energy Assembly and former energy minister of Ukraine stated that Ukraine has never been so energy dependent, as it is now. "The key issue in the energy sector today is energy security and energy dependence that we have," he pointed out.

It would be hard to imagine how the EU policy makers can fail to notice that over the 25 years of its existence, Ukraine has halved own oil and gas production, heat-and-power system has become dependent on external supplies of coal and Ukrainian nuclear power sector has continued to accumulate the debts. Along with that, the GTS of Ukraine represented as one of the largest gas transmission systems in the world has mostly crossed the threshold of the required environment friendly usage period.

High-ranking officials of the European Commission involved in the of EU energy security policy development unfortunately continue to be influenced by the illusions that reverse gas flows that are pumping Russian gas back eastward to Ukraine is the most effective way to ensure the Ukraine's energy independence on a long term basis. Moreover, they believe that such measures on recovery of Ukraine's energy independence are also a good deed in favour of the energy security of EU countries.

It has been already recognized that reverse supplies give a certain political effect, which is especially sought by our partners across the Atlantic. Reverse operations also provide business opportunities for a number of European companies - gas traders. But we must not forget that all of this can happen only, if the EU countries have a substantial surplus of natural gas in their own markets. In practice, this is a complex issue focusing in particular on strong seasonal patterns of demand.

According to Winter Supply Outlook 2016/17 published by ENTSOG on 7 October 2016, this year the level of storages across Europe significantly contributes to the balance of demand across the season. ENTSOG also assured that there is the ability to physically send gas to Ukraine.

Apart from ENTSOG optimistic estimates, particular attention needs to be given to other circumstances, which identify areas of concern related to higher transit risks to gas supplies this year. To begin with, a new long-term forecast from Accuweather has predicted a significant cold shot or two during the second half of the winter season. Therefore, relatively mild and short winters can hardly be expected in the most of EU countries.

Meanwhile this forecast suggested that a number of days with "snow or ice" would be relatively small. For example, forecasters predicted five of those days in London that 10 times less than in Kiev. A comparison with Ukraine is done on purpose to show that although the forecast promises Europeans a comfortable winter, such a substantial difference in the duration of expected cold shots in the EU countries as compared with Ukraine might lead to unintended consequences for our energy security.

As many know, Ukraine uses the same underground gas storages (UGS) both for providing gas transit to the EU, especially covering seasonal unevenness of gas consumption in Europe, and also for meeting a current demand in the domestic market of Ukraine. In that regard, what is more worrisome is that Ukraine started this winter season with much lower actual inventory level of the UGS as the graph below displays.

This year the capacity of Ukraine’s underground storage facilities are filled less than half of their designed volume. According to state gas-transportation company UkrTransGaz, the process of gas injection was stopped on 16 October and at once Ukraine started withdrawing from its UGS facilities. To that date, the accumulated volume of total gas in storage was 14.75 bcm, which is only 48% of total natural gas storage capacity - the maximum volume of natural gas that can be stored in these storage facilities in accordance with its design.

As a comparison, before the previous two winter seasons began Ukraine had had significantly larger gas reserves in its USG. The country entered the winter season 2015-2016 with the accumulated volume of total gas in storage of 17.1 bcm and finished it with a margin of 8.4 bcm. The winter season 2014-2015 started with total gas in storage of 16.7 bcm and ended with a volume of 7.6 bcm left in the UGS. Besides, it should be taken into account that before the considered two winter seasons Ukraine still imported natural gas directly from Russia.

Anyone in Europe, who would pay attention to this tense situation, could come to conclusion that now the EC countries are facing many other much more serious challenges to deal with instead of bearing the undue burden of Ukraine's energy independence. The EC also needs to keep track of a scandalous misuse of funds provided by the EBRD and other international financial institutions allegedly for supporting the energy sector reforms in Ukraine, which in fact is doomed to failure in conditions of energy degradation and rampant corruption. As recently noted by an international energy expert Edward Chow in Financial Times, "Ukraine’s track record of massive corruption in energy is a sadly familiar story."

Is that not a paradox to continue funding corrupt officials in Ukraine? What if we do admit the veracity of Oscar Wilde words, "The way of paradoxes is the way of truth" from The Picture of Dorian Gray, then it is time finally to get to this truth?

Anyway, it is more likely that the paradoxes of the EU policy concerning implementation of the Energy Security Strategy outlined above and in the previous post will seriously remind about itself not just once over this winter. Of course, all of us would like to be optimistic about the future.

Why can't Europeans hope that at least the encroaching winter cold spell has to cool down the heads of those who are inclined to take to the paradox such basic economic concepts as gas demand forecast, cost-efficient way to transport gas or energy independence in order to cover up just the political goals?

Why does the European Commission care especially about energy independence of Ukraine but at the same time continue the TTIP negotiations standing ready to give up a piece of our own interests?

Two and a half years after the European Commission published a new energy security strategy for the EU on 28 May 2016 the logic of its implementation contains more and more paradoxes in regarding the gas market.

Paradox of the European Commission forecasts - it is expected that there will be no a significant increase in demand for gas in the EU until 2030

In the current year, European Commission Vice-President for Energy Union Maroš Šefčovič has repeatedly point out that it is important to take into account the future demand for gas in Europe, while noting that "according to the European Commission, in 2030 the EU would need from 380 to 450 bcm of gas."

Meanwhile, currently the actual consumption of gas is approaching the upper boundary of the specified forecast range. According to Eurostat, in 2015, gross inland consumption of natural gas in EU-28 increased by 4.3 % in comparison with 2014, to reach 16 733 thousand terajoules or about 430.4 bcm.

 

Thus, the European Commission believes that the next 15 years the demand for gas in the EU can either increase more slowly by 4.5 % at most or even decline. However it would be enough just to consider the current situation in the EU gas market to cast doubts on the reliability of this forecast. As the graph above shows, the previous year marked an important turning point when consumption of gas in the EU, after having sunk to the 1995 level, in 2015 for the first time in four years increased by 4.3 %. Moreover, according to the most recent data published by Eurogas, initial 2016 estimates suggest that demand has grown even faster by 6% amounting to 447.1 bcm getting close to the level acturelly anticipated in 15 years.

It is also important to mention that the change of bullish trend with a bearish one in perceptions of gas demand prospects in EU-28 suggested by the European Commission conceals a particular circumstance that should be taken into account. As a matter of fact, gas demand is not evenly distributed throughout the EU countries – three quarters of the EU’s total gas consumption comes from only six western European countries including Germany, UK, Italy, France, the Netherlands and Spain, of which the first three countries consume more than half the EU’s gas demand.

It should be clear that thanks to its leading position on the market, these countries contribute most significantly to the future development of gas consumption in the EU. However, their influence is largely directed towards slowing growth in consumption, as those countries are also leaders in deployment of energy efficiency and renewables programs.

Yet at the same time, many other EU countries have not achieved such results in enhancing the national potential for energy efficiency and renewable energy sources. Furthermore, in South East Europe many people still have to live on the edge of energy poverty. It is not difficult to see how much the EU represents a very heterogeneous group of consumers with a wide spread of demand for natural gas. Therefore it would not have been correct to use only an aggregate of gross inland gas consumption in EU-28 for demand forecasting, which does not reveal unique needs of each member state, whether leaders in the EU gas market such as Germany and Italy or outsiders as Greece and Bulgaria.

Paradox of rather inconsistent intentions of the European Commission to look for the most cost-efficient ways to transport gas where there might be none of them

On a whole number of occasions, many could hear arguments from Brussels regarding the necessity "to estimate what is the most cost-efficient way to transport gas."

How the European Commission manages to apply this principle in practice can be seen in the negotiations between the EU and the US on Transatlantic Trade and Investment Partnership (TTIP), which received wide coverage in every EU country. Fifteen rounds of the TTIP negotiations have been left already behind since July 2013 when EU and US officials had started talks on setting up a transatlantic free trade zone.

It would seem that the wide-scale removal of various kinds of barriers to trade and investments between the European and American continents is for a good cause. However, everybody noticed that the future of TTIP was always negotiated behind closed doors, as this was done not by accident. In fact, concessions and commitments on market access as well as other measures of trade flows liberalization under TTIP to be undertaken by EU states as trading partners could entail far greater costs than the benefits of new market opportunities looming up behind the Atlantic Ocean.

In this context, energy market did not become an exception because such a rebooting of the balance of interests between the two parties on the TTIP basis can result in escalating the costs of implementation of the Energy Security Strategy released by the European Commission in 2014. Nevertheless, the energy policy makers in Brussels do not seem to care much. We have to recall the speech made by EU Climate Action and Energy Commissioner Miguel Cañete at the Atlantic Council, Washington in February 2015 when he said, "Energy needs to be a key part of Trans-Atlantic Trade and Investment Partnership discussions. Our trans-Atlantic energy approach needs to be embedded in this new agreement, we need detailed provisions and promote common standards for the energy sector, and we need gas to be traded freely across the Atlantic."

With regard to LNG suppliers from the US, it is expected that they can benefit from modifying US longstanding energy legislation to simplify license approval for energy export to the EU. However, administrative and bureaucratic barriers will not be the main obstacle to the US LNG supplies to Europe. The biggest challenges lying ahead with LNG imports from the US are related to strong competition on the EU market. In an ever more competitive environment, the most probable scenario is that US LNG exports can actually shift into reverse towards the Asian and Latin American markets.

 

One of previous posts have partly addressed the issue of increasingly unfavorable competitive situation for US LNG on the European market. To all of that it should be added that recent developments in the EU gas market have not opened a window of opportunities for LNG imports from the US even a little wider. Quite the contrary, for example, Norwegian company Statoil, operator of the only European LNG export plant at Hammerfest producing around 4.2 MTPA reported its third-quarter losses widened compared with last year as result of low oil and natural gas prices, extensive planned maintenance and expensive exploration wells.

The present reality is that up to now shale LNG from the US just supplemented the list of potential sources of gas supplies to the EU but it has not proved itself as a commercially profitable resource for energy imports. It is evident that shale LNG from the US could be an economically feasible market product in the near future only in the event of a substantial increase in energy prices in the EU market, but that would be against the interests of consumers in our countries. So far the US LNG imports to the EU has been confined to two cargoes apparently to pursue the goals of encouraging the enthusiasm of TTIP supporters in Brussels as well as performing promotional activities needed for any new brand in the market. It is rather symbolic that two LNG tankers sailed across the Atlantic to LNG import terminals in Western part of the European continent, which are the closest to the US – one is in Spain and the other in Portugal.

The total volume of two LNG tankers was amounted to slightly above 140 thousand tons or 192 million cubic meters that is comparatively small quantity even on the market scale in individual EU countries. This point can be illustrated by making a comparison of the LNG volume delivered by two tankers from the US with annual gas consumption in any of EU countries. For example, according to Eurogas in Austria, where in 2015 consumers bought 8.2 bcm of gas, these two LNG tankers would be only sufficient for a bit more than a one-week consumption. This once again indicates that at least in the near future no market opportunities for significant cost-efficient gains are anticipated for ensuring the Energy Security Strategy by means of TTIP as it has been mistakenly believed.

It is high time for TTIP's supporters in the EU to understand that they are being incredibly short-sighted concentrating only on the political "benefit" side of LNG imports from the US and ignoring the economic "cost" side. Let us see, perhaps the Trump/Clinton election will bring their mind more into balance.
The remaining open question is: how much longer will the high-ranking energy policy makers in Brussels try to attain the contradictory goals instead of responding to the EU gas market realities of today as well as to the challenges of tomorrow?

 

  
 

Why has the Brussels-based commission been so long exploring the interest in trilateral talks with Ukraine and Russia ahead of energy supplies in winter 2016/2017?

The beginning of autumn is the best time in Europe because there is insignificant rainfall and the ground still has stored warmth through the summer. But as the old saying goes, in fair weather prepare for foul. In recent years, one of the necessary preventive measures to prepare for the winter heating season was the trilateral format of gas talks involving the European Commission, Ukraine and Russia to sign a "winter package" securing gas supplies for Europe and Ukraine during the winter season. For the first time a ‘winter package’ was agreed on 30 October 2014 after seven rounds of the trilateral talks in Brussels. One year later last autumn the three negotiating parties reached agreement on the next winter package much earlier on 26 September 2015.

This year, there was a considerable delay in the official notification by the European Commission of its intention to restart the format of trilateral gas talks with Ukraine and Russia. On September 1, Maroš Šefčovič, European Commission Vice-President for Energy Union wrote on Facebook: "In the past, this forum has proven its usefulness: it is better for all to sit down together around one table. Russia as an exporter, Ukraine as a transit country and the EU as the main importer share a common interest ..." But this is nothing more than just a signal to begin the process of preparing possible negotiations, and with a few days remaining before the date of signing of "winter package" in the past year.

What are the reasons for the delay in the initiative of the European Commission to restart the gas talks and what could be the consequences for Europe?

As it was before, each of the three negotiating sides evidently has its own distinct motivation behind the "common interest' mentioned above. With regard to the European Commission, the current ability of Europe to prepare for the coming winter should be of alarming concern. Any person who is familiar with the peculiarities of gas imports by transit via Ukraine knows that in this case the security of supplies is technically dependent on active volumes of natural gas in Ukraine’s underground gas storages (UGS). It is precisely these UGS facilities, which were mostly built in the previous century in Western Ukraine together with other parts of gas transport infrastructure, should ensure stability of supplies for European consumers to reduce vulnerability to cold weather shocks.

According to Eurostat, 15.0 % of the natural gas entering the EU come from Ukraine’s transit in 2015. Evidently, not only a winter package, but the full active volume of gas in the UGS will give a guarantee to bring reliably to the EU countries the necessary volumes of gas through the Ukraine's transit during the coming winter.

 

However, as data of Aggregate Gas Storage Inventory (AGSI+) transparency platform of Gas Storage Europe (GIE) reflects the fact that Ukraine is significantly overdue in injection of natural gas into UGS. Experts note with concern that such a fundamental characteristic of any UGS facility as "Gas in storage" showing the gas contained within it at a particular time is much lower this year. As table above indicates, GIE reported that on August 31, 2016 there was only 12.5 bcm gas in UGS, 40.4 % of the total working gas volume.

At this point, there is a substantial slippage in the schedule seasonal injection of natural gas - the volume of gas in storage accumulated on August 31, 2016 is 2 bcm less than at the same date during the previous year.

It seemed that usual volumes of gas seasonally pumped into Ukraine's UGS, which once met the winter peak demand are now unavailable and this situation has so far not received the attention it requires neither in Brussels nor in Kiev. It would not be overstating the case to wonder whether energy policy makers in Brussels use any seasonal checklist in addition to the gas stress tests well-publicized in the EU. Such a checklist is supposed to be kept under constant review along with the weather forecasts for the coming winter. Another question remains: would it be acceptable to ignore the importance of this challenge hoping that rather warm winter would repeat again and again?

The probable reason for a clearly insufficient attention to the Ukraine's UGS before the coming winter might have to do with the weakening the EU interest among both beneficiaries and providers of financial support to the Ukraine's gas transit and its national economy as a whole. Thus, we can see that, while urging Russia to continue gas transit through Ukraine in words due to European `solidarity’ with that country, in deed the EU reveals less enthusiasm about ensuring the reliability of gas supply route via Ukraine.

This should not be surprising to those who have followed the situation. The existing practice of EU relations with Ukraine shows that at a time of deep economic and financial crisis, and other huge challenges in that country implementation of any measures to be initiated by Brussels to keep Ukraine's gas transit afloat would need to be financed with the direct participation of the EU.

It is unlikely possible to succeed at persuading Russia even indirectly to share the burden of financing unsustainable gas transit business in Ukraine

Possible results of future trilateral gas talks would differ significantly from the previous winter gas package because of a substantially changed situation. Let us recall that according to the "winter package" of 2014 the Russian side provided a discount in the amount of 100 USD per thousand cubic meters. In 2015 the winter package envisaged that Kiev would pay a reduced price of 232 USD per thousand cubic meters during the period covered by the agreement (October 2015 – March 2016). Earlier, Ukraine was paying 252 USD per thousand cubic meters. The EU also agreed to allocate 500 million USD to Ukraine’s Naftogaz to ensure gas stores of 2 bcm for the 2015-2016 winter season.

However, currently it is unrealistic to await that outcomes of future talks would be somewhat similar to the previous ones, since all the circumstances, including also Russia's position, have changed significantly. Obviously, price reductions will not be on the agenda of the next trilateral talks. At the end of June one of online news portals in Ukraine (http://ukropnews24.com/) cited the statement of Russia's Energy Minister Alexander Novak that "it will be absolutely competitive prices, at a level not above the market ..., no discounts on gas for Ukraine is necessary".

Furthermore, Ukraine’s Energy Minister Igor Nasalik also recognized that Russian gas is considerably cheaper so-called reverse, which Ukraine prefer to buy in Europe. "Yes, we pay more because we pay for transit through Ukraine, and across Europe and back, and today the price is 185 USD. Direct contract with Russian the price would be 140 USD," said Igor Nasalik on August 24, 2016, speaking in Ukrainian TV channel, according to The Newspapers.

Many of you could pay attention to how Minister Nasalik described the overpayment of 45 USD as the price of "Ukraine’s independence from Russian gas". Given the large volumes of gas purchases, the cost of "independence" of Ukraine turns into a very large, economically groundless expenses – the country has to pay extra 45 million USD for every bcm of natural gas. However, as can be seen Ukraine does not bother that reverse gas for UGS and internal market is much more expensive. Meanwhile it seems not to be recognized by Ukraine as its own problem.

Liberation from the energy dependence is worth Ukraine getting into a permanent debt bondage

It is clear that due to the limitations of its own funds for gas purchases the Ukraine's side has taken a wait-and-see attitude towards the trilateral talk’s prospects expecting answer to the main question: who will give money to obtain necessary volume of gas before winter? And who could doubt that the EU will be the first to pay the Ukraine’s gas bill again. The official reason to allocate funds has become the regulatory reform of the energy sector in Ukraine. "Completing this process will allow the European Commission to provide 600 million Euros of macro-financial assistance," - said Maroš Šefčovič.

There might be a feeling that if Ukraine received enough reverse gas and funding to pay for it, then the critical issue of UGS readiness for the coming heating season would be solved without the participation of Russia. That is exactly what is being pursued as a primary goal of an unceasing struggle for the Ukrainian energy independence and the present course of European policy to ensure the security of supply. However, it would just be a rather common delusion.

We have to admit that Russia's participation is necessary due to the external circumstances: first, we should not forget that reverse gas is sourced from the EU gas imports from Russia. And second, within the remaining time before the start of the heating season it is already impossible to ensure the readiness of Ukraine's UGS only by means of reverse gas.

There is a common opinion shared by all parties of the trilateral talks that to ensure a secured gas imports to the EU through Ukraine's transit in winter the company UkrTransGaz, which operates underground gas storage facilities, should accumulate 17 bcm of gas by the start of a new heating season. To achieve this, it is necessary to pump into the underground storages in Ukraine still about 4.5 bcm of gas.

What should cause far more concern to gas consumers in Europe would be the lack of time to complete technically this gas injection task because it is known that the reverse gas flow capacity from the EU to Ukraine amounts only to 40 mcm per day. That is why if only reverse gas were used, that would take practically four months to perform the injection operations. In this case, the required volume of gas in Ukraine's UGS would be filled out almost in Christmas Eve!

But that is not all: we should also bear in mind the gas needs in Ukraine that are also met by the reverse from the EU, which has become the only external source of natural gas supplying the Ukraine’s domestic market since Kiev stopped purchasing Russian gas directly.

Thus, in the coming months many of us being European gas consumers will be able to take more or less part in assessing the real capabilities of UGS facilities and Ukraine’s gas transit as a whole.

In the meantime, the question remains present in the mind of Europeans as to why there is no any other gas imports route including among other pipelines from the North of Russia through Belorussia or the Baltic, which has caused over the years as much trouble as Ukraine's gas transit does?

Why do gas consumers in the EU in addition to their genuine concerns regarding workplace and home place temperature have to worry about what a balance pointer reads when Ukraine's UGS problems and growing Kiev debts on one side await to be counterbalanced on the other side by Brussels politically motivated desire to preserve Ukraine's gas transit by all means? And how will the upcoming winter weigh all pros and contras?

 

Why may the shale LNG from the US float away in the other direction?

The EU is the biggest energy importer in the world. According to Eurostat, more than half (53.5 %) of the EU-28’s gross inland energy consumption in 2014 came from imported sources. A special role is given to LNG imports that is increasingly used as an alternative energy resource. In a press release issued on 16 February 2016, the European Commission tried to raise the Europeans’ expectations that new gas liquefaction plants primarily in the US will come on stream shortly.

 

What, then, are the realistic prospects for improving the access of all Member States to LNG?

 

Cheniere is the first US company to be given a license to export liquefied natural gas by FERC. Earlier the company planned to complete the first export shipment at the end of January 2016. However during the final phase of putting the first liquefaction train into operation Cheniere Energy's Sabine Pass LNG export facility encountered serious technical difficulties. After solving the problems this liquefaction and export plant located in Louisiana shipped its first ever cargo of LNG on February 24. Only the sixth tanker from Sabine Pass plant for the first time headed for Europe.

 

The tanker Creole Spirit (IMO: 9681687), which can hold up to 174,000 m3 of LNG docked at the port at Sines in Portugal on April 26. The second delivery to Europe took place three months later, when on July 22 the tanker Sestao Knutsen (IMO: 9338797), with 138,000 m3 of LNG aboard, arrived at the Reganosa terminal at Ferrol in northwest Spain.

 

What do two LNG cargoes within more than half a year mean for the whole EC gas market? With LNG density within 450 kg/m3 we can calculate that the total weight of two LNG cargoes, which were shipped from the US to Europe, accounted for a little more than 140 thousand tons. In comparison, according to the International Association for Natural Gas, Cedigaz, in 2015 net imports in Europe increased by 4.47 million tons up to 31.35 million tons. Thus two cargoes of the US LNG amounted to just less than one-half of one percent of the EU' annual imports.

 

Could a couple of LNG "drops" within more than half a year be appropriate to the EU expectations?

 

A better time could hardly be imagined to see how such a "high wave" of shale LNG from the US leaving the mountains of the Pyrenees behind may influence the EU gas market. Some experts believe that LNG imports from the US will not be able to provide a significant alternative to other sources of the EU gas supply mainly due to lack of regasification terminals. However, it is enough to look at the map of LNG import terminals in Europe, to make sure that at least in the western part of the European continent it is unlikely to be a pressing obstacle to LNG supplies from the US. According to GIE, there were 22 LNG receiving terminals with total annual capacity 197 bln.m3 two years ago in Europe.

 

The development of necessary infrastructure for LNG imports in the countries - members continues. A recent example is France's fourth LNG import terminal in the port of Dunkirk that received its first commissioning cargo from Nigeria on July 8. This LNG terminal will have an annual regasification capacity of 13 bln. m3 of gas, enough to cover about 20% of France and Belgium’s yearly gas consumption.

 

The real obstacle to LNG imports from the US actually is a triple imbalance in the gas market current development

 

Firstly, it is natural gas supply-demand imbalance in the global market. Bloomberg article covering the launch of the Dunkirk LNG terminal especially pointed out that it was made "with market plagued by glut". Before that in the Global LNG supply and demand monitor released in June Bloomberg predicted that a global glut of the fuel would peak in 2020 with production capacity exceeding demand by 29 percent.

 

Secondly, it is an imbalance in the capacity utilization rate of all the existing LNG regasification capacity in Europe. According to the International Gas Union’s annual LNG report, usage averaged 25 percent in 2015, ranging between 7 percent and 54 percent by country.

 

The imbalance in the third plane is strongly related to an actual accessibility to the LNG infrastructure for certain EU member states. In fact, although the EU's overall LNG import capacity is significant, in some regions of the EU, especially in Southeast Europe many countries have not got access to LNG. As can be seen, there are countries, such as Bulgaria, which are completely absent in the table prepared by GIE.

 

What is notable in this regard, however, is that LNG cargoes from the US have been stuck halfway towards most other EU countries not only because of the continued imbalance in the geographical distribution of LNG regasification capacities. One of the principal reasons obviously has to do with transport costs, which on long transoceanic routes becomes a key component of LNG purchasing costs.

 

As is known a simplified LNG supply chain consists of four components: costs of feed gas purchased at the source, costs related to the liquefaction process, transportation costs and costs of regasification. The share of transport costs usually ranges between 10-35 percent of the final price paid for natural gas. The significant transportation expenses have a great influence on the ability to compete in the EU gas market. Moreover, this is recognized by many experts that transport costs are frequently even more volatile than other components within LNG supply chain.

 

An ordinary estimate shows that in the current market situation of increasing competition LNG from the US can at best reach its destination no further than the Iberian Peninsula

 

The article, entitled "US LNG capacity utilization: Lower prices challenge US exports" (www.gastechnews.com) contains a cost dispatch formula to illustrate US LNG competitiveness in the EU, which uses NBP spot price as a proxy for EU and Atlantic Basin LNG prices, and Cheniere’s feed gas charge of 115 percent of HH spot price. There are also additional 10 percent to cover ship fuel.

 

Based on this formula, it is easy to calculate the cost dispatch on a certain date. For example, NBP spot price was 3.85 USD/MMBtu and 125 percent of HH accounted for 2.75 USD/MMBtu on August 15. As a result, the value of discussed "cost dispatch" of LNG from the US to Europe would amount to 0.41 USD/MMBtu.

 

Meanwhile the figure calculated for the gas hub in the UK cannot, of course, be seen as precise indicator of the US LNG competitiveness for the whole gas market in the EU. In continental Europe it would be even lower.

 

Think again about the example of calculation above. On the same date, TTF spot price was 11.04 Euro/MWh, which equals 3.65 USD/MMBtu. Accordingly, after subtracting there would be a balance of 0.21 USD/MMBtu, which provide obviously insufficient resources for covering expenses of the US exporter dispatching LNG to Europe. That hardly seems like enough for rental costs of LNG tankers, harbor fees and charges associated with freight by sea, such as a fee for crossing channels, let alone how much of it should be envisaged for costs of regasification as the final component of LNG supply chain.

 

In this example, it is easy to see that US LNG is not ready to compete successfully for a share of the EU gas market. Two Cheniere's cargoes to the Iberian Peninsula that, as is known, just has not got proper connection with European gas infrastructure yet, should be seen as only a marketing initiative that is not able to affect the entire market place.

 

Moreover, we cannot ignore that the LNG suppliers from other regions of the world have already captured leading positions on the Southwest European gas market. Portugal and Spain mostly import LNG from Algeria, Nigeria, Qatar and Norway. Moreover, according to Cedigaz, in Spain, which in addition to imports to internal market also reloaded about 3.99 million tons in 2014, LNG re-exports dropped almost fourfold to 1.05 million tons in 2015.

 

East or west, what would be the best?

 

Almost right after the second shipment to Europe another tanker Maran Gas Apollonia (IMO 9633422) with the capacity of 161,870 m3 of LNG was loaded with a cargo from Cheniere’s Sabine pass liquefaction plant and on July 25 transited through the newly expanded Panama Canal connecting the Atlantic and Pacific oceans. Of course, the Panama Canal Expansion is an important event affecting the global LNG market as well. The question remains as to whether it helps US LNG to take a worthy position in the Asian gas market.

 

In searching for an answer to that question, it is not difficult to repeat for the Asian market the above made calculation. As Bloomberg reported, Asian spot prices for LNG have already slumped by about 60 percent since September 2014 amid new supplies and fell to 5.413 USD/MMBtu on August 15, according to the Singapore Exchange Ltd. Taking this into account the value of discussed "cost dispatch" of LNG from the US to Asia would amount to 1.98 USD/MMBtu. Although it is many times higher than for Europe, and therefore more optimistic, we cannot ignore that the global glut is also having considerable impact on the Asian gas market.

 

Newcomers to the Asian gas market are supposed to have to be prepared for unpleasant surprises caused by the continued natural gas supply-demand imbalance. On the one hand, as experts estimate it is likely to expect that Australian gas production almost double from 2015 levels of almost 80 bcm to 153 bcm in 2021. There are concerns, on the other hand, about poor prospects of gas demand in Japan, which is the world's largest LNG importer. The country's government has forecast imports decline to 62 million tons in 2030 from a record 88.5 million tons in 2014 resulted from a shift to nuclear power as plants restart and more renewable energy.

 

Despite the glut of global LNG market, Cheniere Energy continues to expand production. It "expects substantial completion of Train 2 to be achieved in late September 2016", the company said in a statement. Trains 3 and 4 are expected to be completed in 2017. According to the company's plan, a total of six trains are to be built at Sabine Pass LNG plant, each with annual capacity about 4.5 million tons.

 

Meanwhile it looks like the company is not sure of its future strategy and has only a vague notion of what might meet on its way ahead. In the recent past the company has endured the replacement of Chief Executive Officer Charif Souki who has been its longstanding leader. According to Bloomberg, he was fired because of his plans to expand the company’s operations. The company carries 24 billion USD in debt, and the current market situation still makes it harder for the company to service its huge debt. Cheniere Energy quarterly reported growing net losses.

 

Nevertheless, those who would like to see into the future obviously expect that the more LNG Cheniere produces, the more certain the company should become with regard to the choice of its export routes. Up to now, the results cannot inspire confidence for fairly massive supplies taking place further on.

 

Every sports fan, especially who visited The Rio Olympic Games, is well aware that to achieve a new challenging height, one needs a very good run-up.

 

Why does Cheniere's exports "run-up" appear so muted? Why does the company seem to be uncertain whether it is worth at all setting a proper run-up in the direction of the EU gas market?

 

Why is Brussels less concerned about the impact of Brexit on the EU gas market than the future Ukrexit?
 

The European Union has always attached importance to the development of the UK energy sector. It is enough to mention that in 2014, total European Investment Bank (EIB) investments in the UK economy came to 7 billion euros and energy projects accounted for 50 per cent of this amount.  

  Brexit: the last EU gas exporter is leaving

Before Brexit, the UK was the only EU member state, producing and delivering gas to other EU countries, mostly to Belgium. A short list of the EU gas exporting countries is vanishing before our eyes, as the Netherlands - the leader in gas production in the EU - changes from a net gas exporting country to a net gas importing country.

According to the BP Statistical Review of World Energy, June 2016, gas exports from the UK to the EU market amounted to 13.4 bcm in 2015. On the one hand, it would seem quite insignificant amount compared to the annual gas consumption in the EU, which reached 426.3 bcm in 2015. However, it depends how you look at it, because, on the other hand, it could be compared with considerable efforts made by the EU to support the projects of the Southern Corridor, aiming at an even smaller annual volume of gas imports than from the UK - only 10 bcm.

The global trend should be obvious for all of us - in the long-term energy resources do not become cheaper, but quite the contrary. This should make everybody realize a high value of every bcm of gas supplied to our market by different routes, the choice of which is necessary to maintain competition.

In that regard, the British National Balancing Point (NBP) secession from the EU market can hardly benefit competition on the EU gas market. Before 2014, the NBP hub had been at the forefront of gas market development and then the Dutch Title Transfer Facility (TTF) overtook NBP as Europe's most liquid gas hub. For many years these two European gas hubs – the UK's NBP and the Dutch TTF - together conducted more than 80% of transactions, significantly outperforming its competitors on the spot market of gas in the EU. The NBP secession nominally reduces a number a virtual trading locations for sale, purchase and exchange of natural gas on the EU market. It will considerably enhance the TTF competitive position that can influence trends of spot gas prices not in favor of consumers in the EU market.

It is expected that there will be new problems not only for gas consumers but for European energy companies too. According to Reuters, Royal Dutch Shell's chief executive, Ben van Beurden told that Britain's decision to exit the EU could slow its 30 billion USD asset sale plan, especially in the North Sea.

Ultimately, with the Brexit vote the EU is losing an important participant of the Energy Union project. However, neither parting with the last EU gas exporter and one of leading gas trading hubs nor rising financial and investment complexities for energy companies of course are not the only consequences of the Brexit vote, which in general significantly increases an uncertainty and will lead to further problems.

The issue of the Brexit economic impact is becoming therefore a source of grave concern to European energy companies and gas consumers in the EU. But strangely enough, despite all alarming signals, the European Commission has been slow to focus on the Brexit energy implications. As before, Brussels takes much greater interest in eastern energy policy aimed at substantially reducing and even for some member states eliminating imports of Russian gas by the early 2020s. At the same time, there has been an ongoing attempt somehow to weaken the Ukraine crisis, which, in particular, in gas sector leads to "Ukrexit".
 

A major question remains as to whether such in essence geopolitical goals of the European Commission conform to the interests of the EU gas market participants.

The Ukrexit: who would be in favour of an exit, and who would want to remain?

Let us first define that in the context "Ukrexit" means a serious limitation of the Ukraine's gas transit and thus the Ukraine's exit from a group of countries mainly providing transportation of gas to the EU market. Now we could imagine a voting script, which is disclosed by actions and positions taken by stakeholders.

At first about Ukraine's position that opposes vigorously a reduction of gas transit services because if it happens the country annually will lose budget revenues of around 2.0 billion USD.

Moreover, the gas transit is of particular importance to Ukraine that has since been trying to cut its dependence on Russian gas. Indeed Ukraine has not bought gas from Russia since November 25, 2015. Since then and up to the present time the country imported Russian gas only by means of reverse operations from the Eastern European countries - Slovakia, Poland and Hungary. The scheme of reverse supplies to Ukraine have been widely discussed in the past few years.

It is well known that European companies sell to Ukraine gas previously purchased from Russia and returned by reverse to the territory of Ukraine. Nevertheless, even in the case of physical reverse when it is necessary to spend money to pump gas back and forth across the border, anyway it is cheaper than, for example, to pump Norwegian gas for a distance exceeding 2.5 thousand km. In fact, without the transit of Russian gas European suppliers would have to look for other, more expensive sources of supply to Ukraine instead of reverse gas.

However, Ukraine is not satisfied with the existing financial returns from operations with Russian gas reverse that is seemingly unique for its benefits. Ukraine tries not only to keep its transit status, but also to increase significantly gas transportation services revenues. So far, the rate of transit tariff is determined under the long-term contract between Naftogaz and Gazprom that is in force from 2009 to 2019. The rate is calculated based on a formula linked to the fuel cost factor and inflation rate in Europe. In 2015, the gas transit rate through the territory of Ukraine was 2.73 USD per 1,000 cubic meters per 100 kilometers. Meanwhile Kiev has intended to raise it to 4.9 USD counting on Ukraine's geographic location on the gas transit route to Europe may be able to earn very high returns.
 

It is clear that such intentions of Ukraine only further strengthen Russia's determination to abandon the Ukrainian transit that would be Ukrexit implementation in practice.
 

Suppose, gas consumers in the EU would vote Ukrexit. In principle, Europeans should not really care where gas comes from to their houses and offices. The most important thing that European gas supplying companies are aware of very well is that their customers are expecting stable gas supplies at competitive prices.

One cannot merely fail to notice that Ukrainian transit is not capable to meet these expectations of Europeans. Who still doubts that the Ukraine's gas route has no future? Facts speak for themselves: the gas delivery costs grow so fast, the Ukraine's gas transportation system, on the whole, has become more and more old, its technical conditions and ecological characteristics have even more dramatically worsened in recent years, and the Ukrainian economy, which subsists primarily on the IBRD and IMF loans but still continues to drown in debt.

In 2015, the transit of Russian gas through Ukraine amounted to 67.1 bcm or about 16 percent of an annual gas consumption in the EU countries. Now it is in a high-risk area that raises the alarming prospect and may become a real source of major concern for Europeans.

Europe’s choice: The Ukrexit and Nord Stream 2
 

Pursuant to the common business guidelines, European energy companies are assuming the primary responsibility for meeting the expectations of gas consumers. It is quite natural that companies take into account the interests of consumers in seeking the most profitable and reliable partners and suppliers. When Russia put forward an idea of new more economical route for EU imports of gas through Nord Stream 2 as an alternative to the Ukrainian transit five leading European energy companies supported the initiative.

Participation of E.ON Global Commodities SE, Engie SA, OMV Nord Stream II Holding AG, Shell Exploration and Production (LXXI) B.V., Wintershall Nederland B.V. in a joint project Nord Stream 2 together with Russian company Gazprom can be regarded as an accomplished fact of voting for Ukrexit. Due to Nord Stream 2, the annual capacity of the direct offshore pipeline between Russia and Germany will increase from 55 bcm to 110 bcm by 2019 that will make possible largely to bypass the Ukraine's transit.

Many opponents in the EU are seriously engaging in attempts to find any economic competitive disadvantages of the new gas route but there is no any convincing arguments yet to be presented. "The tariff for transporting gas by Nord stream – 2 will be half cheaper than through the territory of Ukraine", said the financial Director of Nord Stream 2 Paul Corcoran.

The tariff for gas transport via the existing Nord Stream is set at 2.1 USD per 1,000 cubic meters per 100 kilometers, which is 20% below the current tariff for transit through the territory of Ukraine. According to Financial Times, Alexei Miller, chief executive of Gazprom, said in a speech at the St Petersburg International Economic Forum in June that the company would plan to tap fields in the Yamal Peninsula, meaning that gas delivered to Germany via the Nord Stream 2 route would travel 4,166km compared with 6,051km via Ukraine. Therefore thanks to decreased operating costs and a shorter route the total costs of gas delivery from Russia’s North to Germany via the Nord Stream will be about 1.6 times lower than for transportation through the territory of Ukraine even at the current transit tariff.

Mr. Miller also said that transit through Ukraine would fall to 10-15 bcm per year after 2020, when Gazprom’s contract with Ukraine expired and Nord Stream 2 was set to start operations.

"We cannot worry each summer what will happen in the winter"

This is an extract from the speech made by Vice-President of the European Commission for the Energy Union Maroš Šefčovič at the Energy Security Summit of Frankfurter Allgemeine Forum and the Munich Security Conference last year in Berlin. It was hoped that Mr. Šefčovič meant Brussel’s reluctance to experience further the risk of disruption to gas supplies from Russia by the transit route through Ukraine and that it was time to choose an alternative and more reliable route but that was not the case.

The European Commission persistently confronts the process of Ukrexit despite the fact that given the status of the Ukraine's gas transport system its future is doomed because of a number of obvious reasons. Meanwhile, Brussels is not only trying to impose a direct relationship between the approvals of Nord Stream 2 with the further fate of the Ukrainian transit but is continuing to spend the EU funds for the latter "resuscitation".

The EU promises to consider a possibility to grant 100 mln Euro to support the Energy Efficiency Fund in Ukraine. It was announced on July 19 at a meeting of Vice-President of the European Commission for Energy Union Maroš Šefčovič with Prime Minister of Ukraine Volodymyr Groysman.

Brussels should finally pay attention to a growing number of people in Europe who would vote for Ukrexit, who do realize the futility of such financial droppers and other attempts to preserve the gas transit function and the physically worn out and over age gas pipes for artificial breathing of the Ukrainian economy.

A new study "Assessing Nord Stream 2: regulation, geopolitics & energy security in the EU, Central Eastern Europe and the UK" written by Andreas Goldthau for the European Centre for Energy and Resource Security and the Russia Institute of King’s College London has concluded, "As the case of Nord Stream 2 demonstrates, the EU therefore needs to take choices on a central question: is the Commission a regulator (hence neutral) or a political animal?"

Why not admit that neither any consideration of geopolitical nature given by the European Commission nor least of all a constant Trans-Atlantic preaching may affect the real market competitiveness of the Ukrainian transit? Only people who actually pay for gas in Europe should vote Ukrexit.