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7 November, 2013 14:53   ▪  

The Economist: increase in the reverse gas flow from Europe to Ukraine is blocked by the energy oligarchs with strong connections to Yanukovych and Gazprom

After export of liquefied gas to US decreased, Western energy companies are happy to supply Ukraine with gas, but there are still a lot of obstacles, including the interests of oligarchs whoa are close to Yanukovych and Gazprom, The Economist says.

“Closer relations with Ukraine would be a big prize for the European Union: its 28 members are hoping to wrap up an association agreement during the current six-month Lithuanian presidency. And Ukraine is increasingly looking west: recent Russian bullying has prompted normally pro-Russian leaders in Ukraine to call for a reduced reliance on their giant neighbour. The cause of the recent spat, as always, is energy. On October 29th, the Russian prime minister, Dmitry Medvedev, complained publicly of “critical” overdue bills owed by Ukraine to Gazprom,” The Economist reports.

Since then, Ukraine has tried to lessen its dependence on Russia, signing deals with multinational energy companies to help it develop its shale-gas formations, thought to be the third-largest source in Europe. On November 5th Ukraine signed a $10 billion deal with Chevron on a project at its Olesska shale field

“Western energy companies are happy to supply Ukraine with gas. They export less liquefied gas across the Atlantic now because of America's shale-gas boom, leaving more that could be sold to Ukraine at prices lower than the $400 per thousand cubic meters that Gazprom is charging. Western gas might cost around $30/tcm less,” The Economist points out.

READ ALSO: After Gas

Some gas from west Europe already flows through Poland and Hungary to Ukraine. But the biggest opportunity lies in going through Slovakia, which would let Slovakia reap west-to-east transit fees, but the plan is making little progress. Some point the finger at Slovakia, which has raised technical obstacles to reverse flows. Observers say the real problem is that the Slovakians do not want to upset Gazprom, with which Slovakia has signed a big 20-year contract. 

RWE, a German energy company, signed an agreement last year to ship as much as 10 billion cubic meters annually to Ukraine’s Naftogaz until 2017. If it did ship that much, it would be a huge chunk of Ukraine’s imports. But RWE may ship just 1.3bcm this year. It would need Slovakian pipeline capacity to do more in future. Stefan Judisch, the boss of RWE’s energy-trading business, complained in June that two test pumpings were rejected at the bit of the pipeline connecting Slovakia to Ukraine, though RWE was not told why.

Others blame Ukraine. The main metering and compressor station for gas on the Ukrainian side of the border is controlled by Gazprom, and could potentially block reverse flows. An alternative “interconnector”, bypassing Gazprom’s metering station, has been proposed, and priced at just €20m.

“It's all a mess. Mr Yanukovych, complains frequently about the high prices Gazprom charges his country. He must balance public anger at high energy prices with the interests of the oligarchs before the next election in 2015. A deal for reverse flow could help him lower those prices, and could benefit the oligarchs, if he can find a way to bring them into the deal. It is a ticklish bit of negotiation that may not succeed. But that it is happening at all is testimony to how much Russia might have overstepped the mark with Ukraine,” The Economist admits.

READ ALSO: Is Gazprom on the Ropes?


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