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Russia-Europe Gas Supply:
Ukraine Continuing Transparent & Reliable Partnership
Gazprom is in breach of contract and trila...
Gas imports in Ukraine
Russia 25,8 Russia 14,5
Europe 2,1 Europe 5,0
Total 27,9 Total 19,5
Source: Naftogaz of Ukraine
Sou...
The Slovakia-Ukraine Gas Transmission Interconnector
A Key for Energy Security in Ukraine and the EU
Background & Current ...
Direct interconnection between
Ukrainian and Slovak TSOs
crucial for the EU energy security
6 B. Khmelnytskoho Street | Ky...
Ukraine-Slovakia interconnector key for energy security
2
• Russian gas blockade: interruptions of supply from the East,
i...
Ukraine-Slovakia interconnection point
3
• Direct interconnection agreement between UA and SK operators
enables two option...
Ukraine-Slovakia interconnection point
4
• Direct interconnection agreement between UA and SK operators
enables two option...
EASE Eastern, Adriatic and
Southern Europe
• Ukraine’s system strongly complements to Central European grid
creating an in...
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An intensive year in energy diplomacy

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Vsevolod Chentsov, at the Vienna Forum on European Energy Law 2015

Published in: Law
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An intensive year in energy diplomacy

  1. 1. Russia-Europe Gas Supply: Ukraine Continuing Transparent & Reliable Partnership Gazprom is in breach of contract and trilateral agreement between Russia, Ukraine and the EU  Gazprom is in violation of the supply contract and the Brussels trilateral protocol. No explanation has been provided so far  Fully in line with the contract, Naftogaz ordered 114 million cubic meters (mcm) for both 22 and 23 February. Gazprom only supplied 47 and 39 mcm on these dates, respectively  As of 23 February 2015, Naftogaz’ remaining prepaid balance with Gazprom stands at 287 mcm Ukraine will not allow dispute with Gazprom to threaten European energy security  Throughout Russia’s aggression against Ukraine Naftogaz has flawlessly transported gas to Europe. Ukraine will remain fully reliable partner  Ukraine’s gas transit and storage infrastructure is one of the world’s most advanced. Naftogaz’s efforts at corporate reform and boosting transparency have been praised by our European partners Sending supplies to the occupied territory (ATO zone) is illegal and puts European supplies at risk  Naftogaz does not have staff at gas metering stations (GMS) in the anti-terrorist operation (ATO) zone as this would put our employees’ lives at severe risk. This means there are no authorized Naftogaz representatives to control and confirm gas delivery at these entry points  The contract stipulates that any change of supply routes must be coordinated and approved by both parties. Naftogaz cannot pay for supplies it has not ordered and is not able to verify  The existing Russia-Ukraine-EU gas supply route has proven its reliability for many decades. Sending gas through a longer route which runs through a conflict zone makes no logistical sense Standard procedure is crucial for ensuring smooth supply to the EU  By the standard procedure, Gazprom indicates gas volumes to be delivered at specific exit points on the western border of Ukraine, depending on orders from EU clients  Naftogaz, in turn, indicates gas volumes to be delivered at specific entry points on Ukraine’s eastern border. This procedure is essential to make possible the delivery of requested volumes to the EU border with no time lag (during the same day) Uncontrolled GMSs were never used to supply transit gas; Should Gazprom decide to change the route, EU supplies will be put at an unjustifiable risk Naftogaz warns of risks that Gazprom may claim it supplied transit volumes through uncontrolled GMSs in occupied regions This may result in potential gas supply disruptions to the EU, not because Ukraine fails to transit gas but because Gazprom stops supply Transit supplies through occupied GMSs would make no logistical sense, be economically inefficient and would endanger the security of flows because of the fighting
  2. 2. Gas imports in Ukraine Russia 25,8 Russia 14,5 Europe 2,1 Europe 5,0 Total 27,9 Total 19,5 Source: Naftogaz of Ukraine Sources of imported gas, % Russia 92% Russia 74% Europe 8% Europe 26% Total 100% Total 100% Source: Naftogaz of Ukraine
  3. 3. The Slovakia-Ukraine Gas Transmission Interconnector A Key for Energy Security in Ukraine and the EU Background & Current Situation  Reverse gas flow between Slovakia and Ukraine amounting to 15 billion cubic metres (bcm) per year has been operational since September 2014 via the recently opened Vojany-Uzhhorod pipeline, demonstrating that Ukrainian and Slovak transmission system operators (TSOs) can provide fully reliable cross-border gas flows via technically robust direct interconnection.  Aside the new pipeline, the old grid interconnection between Slovakia and Ukraine (the “primary interconnector”) has a capacity of nearly 100 bcm per year through four pipelines, allowing for virtual reverse flows (“backhaul”) of the same volume in the West-to-East direction.  By using agreements common in the rest of Europe on virtual reverse flow, the Ukrainian and Slovak TSOs would be able to match gas volumes purchased in the EU and nominated for shipment to Ukraine against gas volumes nominated for shipment from Ukraine to the EU. Only the resulting net volume would then be physically transmitted through the interconnector. This would not negatively affect Gazprom’s ability to deliver contracted gas to its European customers.  However, Gazprom is currently blocking virtual and physical reverse gas flow from Slovakia on the grounds of holding a legacy contract with Slovak TSO Eustream, despite the fact that nearly half of the old grid interconnector capacity is idle. Importance for Energy Security in Ukraine and the EU  Unblocking the current bottleneck would ensure that Ukraine can import all the gas it needs from Europe, at a more competitive price than currently being offered by Russia, fill-in its gas storage and avoid gas disruption. This would be a vital step to bolstering Ukrainian and European energy security.  Free gas flow between Ukraine and Slovakia has also clear benefits for the EU: ‒ It opens up an enormous market for European energy companies to sell into and provides access to Ukraine’s vast underground storages. ‒ Financial support that has been offered by the international community to Ukraine is not squandered on inflated costs of gas imports from Russia. ‒ It significantly increases energy security for those countries in Southeast Europe currently most exposed to potential supply shocks and leads to fair market pricing for end consumers in these countries [e.g. Bulgaria, Serbia]. Immediate EU Action Needed  The EU must act now to ensure that virtual and physical reverse gas flow between Slovakia and Ukraine is unblocked. In blocking the full usage of the interconnector pipelines between Slovakia and Ukraine, Gazprom is clearly acting in contravention of the principles of the EU’s Third Energy Package.  Urgent EU action is also needed to have a direct interconnection agreement signed between Ukrainian and Slovak TSOs for all pipelines at the interconnection point. With ample capacities existing and the solution being already technically available, no investments from either the EU or Ukraine are required.  No legislative change, only the implementation of existing EU law on EU territory is needed. Enabling this spare capacity to be fully used will mean that Ukraine and Southeast Europe are insulated against future disruption to gas flows. Naftogaz of Ukraine is committed to being a true energy partner for the EU and will continue its close collaboration with the European Commission. +380 44 586 3579 | www.naftogaz-europe.com | pr@naftogaz.com | 6 B. Khmelnytskoho Street, Kyiv 01001 Ukraine
  4. 4. Direct interconnection between Ukrainian and Slovak TSOs crucial for the EU energy security 6 B. Khmelnytskoho Street | Kyiv 01001 Ukraine | Tel.: +380 (44) 586 3579 www.naftogaz-europe.com
  5. 5. Ukraine-Slovakia interconnector key for energy security 2 • Russian gas blockade: interruptions of supply from the East, insulating Ukraine from the West • Urgent EU action needed for the sake of gas supply security in the region: open up existing Slovak West-to-East capacity via backhaul • No investment required: ample free capacity already exists • No new laws required, only implementation of existing EU law on EU territory – Ukraine seeks no concessions • Free gas flow between Ukraine and Slovakia benefits the EU: – improves energy security of Hungary, Romania, Bulgaria, Serbia – opens access to Ukraine’s vast underground storages – leads to fair market pricing for end consumers in CEE
  6. 6. Ukraine-Slovakia interconnection point 3 • Direct interconnection agreement between UA and SK operators enables two options: UkraineSlovakia EU border Gazprom Export Prevents virtual reverse flow Violates EU 3rd Energy Package OPTION 1: VIRTUAL REVERSE FLOW (BACKHAUL, NETTING) 100 mcm bought by the EU in Russia 30 mcm bought by Ukraine in the EU 70 mcm transported to the EU 30 mcm bought by Ukraine stays in the EU 30 mcm bought by the EU stays in Ukraine70 10030
  7. 7. Ukraine-Slovakia interconnection point 4 • Direct interconnection agreement between UA and SK operators enables two options: 4 old grid pipelines Total capacity: ~100bcm/y Used East-to-West: ~55bcm/y Requested West-to-East: 24bcm/y UkraineSlovakia EU border Gazprom Export New pipeline Capacity West-to-East: 15bcm/y Prevents using the idle capacity in W-E direction Anti-monopoly issue OPTION 2: PHYSICAL REVERSE FLOW
  8. 8. EASE Eastern, Adriatic and Southern Europe • Ukraine’s system strongly complements to Central European grid creating an interconnected market that consumes 100+ bcm/year • Ukraine’s huge storages are conveniently located at the crossing of major pipelines in the western part of the country POLAND LITHUANIA SLOVAKIA HUNGARY ROMANIACROATIA BOSNIA HERZEGOVINA SERBIA BULGARIA FYROM UKRAINE LNG terminal LNG terminal under construction Gas hubs Gas storages Gas storages under construction Existing pipelines Planned pipelines LEGEND Planned LNG terminals NCG • Ukraine’s existing grid provides the technical possibility for direct flows between Slovakia, Poland, Hungary and Southern Europe in any direction • Together with Poland’s planned infrastructure Ukraine’s existing pipelines provide a powerful connection between Europe’s north and south CEGH BELARUS RUSSIA RUSSIA LATVIA TURKEY GREECE ITALY AUSTRIA GERMANY DENMARK RUSSIA Gaspool CZECH REP. MOLDOVA

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