Naftogaz in Talks Over Joint Pipeline Management

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Ukraine is discussing a joint venture with “reputable Western transmission system operators” to co-manage its gas transmission system, said Naftogaz Ukrainy CEO Andriy Kobolev in a statement June 19.

This could “provide additional comfort to European gas buyers,” he said in a statement June 19, without naming the operators. 

Naftogaz and its pipeline subsidiary Ukrtransgaz, Italy’s pipeline operator Snam and Slovakia’s Eustream signed a memorandum of understanding two months ago aimed at jointly evaluating opportunities for collaboration in the operation and enhancement of the late Soviet-era gas transmission system. Both west European transmission system operators have a strong interest in maintaining flows via Ukraine to the EU.

If Gazprom’s Nord Stream 2 goes ahead, then Ukraine’s high-pressure pipeline network will be largely redundant.

Ukraine has resisted concessions or third-party operators running its gas pipelines as they have been seen as a strategic asset. Major European importers including Eni, Engie, Shell and E.ON/Uniper in the past discussed this with Ukraine but talks led nowhere after being blocked in parliament.

Unbundling has also meant that the importers can no longer build capacity directly but have to buy capacity through auctions which will tell pipeline operators which lines to build, depending on demand.

Citing observations by Germany’s foreign minister Sigmar Gabriel and Austrian chancellor Christian Kern that gas supply to Europe should be on transparent and market-based principles, Kobolev said that preserving the existing routes “provides the optimal solution for the European gas consumers. The other route is Yamal-Europe, which crosses Belarus and Poland.

Kobolev said that in the absence of free-market principles governing the use of Nord Stream 2, then its own pipeline system should be used to transit Russian gas.

It is acknowledged that the ageing system needs modernising. And at the moment there is no distinction between transit and national supply lines, being built when Ukraine was not a transit country but a member state of the Soviet Union.

Gazprom owns half of Nord Stream 1 and is financing half the cost of Nord Stream 2, of which it remains the only owner.

Naftogaz believes the European Commission should use its mandate as a guardian of the interests of the European consumers and insist on the application of the EU’s Third Energy Package to the Nord Stream 2 project. It should also consider applying the same framework to Nord Stream 1, as it was applied to Yamal and another export pipeline project South Stream. This legal framework shall ensure proper regulatory and anti-trust safeguards against market manipulations and abuse of dominance.

He said that unlike Naftogaz, Gazprom is rejecting “the application of the standard European rules to its Nord Stream 2 project and relies heavily on numerous carve outs from the Third Energy Package in its activities in Europe.” Further he said NS 2 was jeopardising the development of the Energy Union by antagonizing the member states. 

By contrast, “the traditional land-based pipeline route running through Ukraine offers unmatched transmission capacity, reliability and flexibility to deliver gas to the EU under the European rules of business. The traditional route is also the most cost efficient way to deliver Russian gas to central, eastern and southern Europe. Out of all options, it is the only delivery route of Russian gas which is fully unbundled from the Russian monopoly supplier.”

This infrastructure is already existing, secure and well maintained. Unlike Gazprom, the Ukrainian operator discloses its data online at the Entso-G transparency platform and co-operates with the European Commission.

 

William Powell