Bloomberg News

Ukraine-Europe Gas Link to Run at Capacity This Summer

July 08, 2014

Eustream AS Chairman Tomas Marecek

Eustream AS Chairman Tomas Marecek signs an agreement on a Slovakia-Ukraine memorandum on reverse-flow gas supplies in Bratislava, on April 28. Photographer: Samuel Kubani/AFP via Getty Images

A pipeline allowing Ukraine to import gas from Europe will start running at full capacity in September, providing vital fuel supplies as winter approaches with the prospect of no shipments from Russia.

The Vojany pipeline from Slovakia has been booked to ship 10 billion cubic meters a year until 2019, or about 20 percent of Ukraine’s demand, said Tomas Marecek, chairman of the link’s operator, Eustream AS. Ukrainian utility NAK Naftogaz booked the majority of the pipeline’s capacity for the five-year period, while the rest was reserved by European utilities, he said.

Vojany, unused for about 15 years, will be crucial this winter after Russia stopped exporting gas to Ukraine last month in a dispute over unpaid bills. Together with smaller pipelines from Hungary and Poland, Ukraine can import about 16.5 billion cubic meters a year from the European Union, Marecek said. That replaces about two-thirds of the fuel coming from Russia, and by reducing consumption and using underground storage, Ukraine stands a chance of lasting through the winter, he said.

“However things are not fully under the control of Ukraine,” Marecek said in an interview in Prague yesterday. “The weather will play a major role as well.”

Reverse Mode

While Ukraine would like even more gas from Europe, Slovakia, where the majority of Russian gas enters the EU, can’t increase reverse flows into Ukraine further without violating the existing contract with OAO Gazprom, the Moscow-based export monopoly, Marecek said. Under agreements between Eustream and Gazprom, no changes in gas use can be made before the commodity reaches the main import station in Slovakia about 7 kilometers (5 miles) past the Slovak-Ukraine border.

Eustream will spend as much as 20 million euros ($27 million) to prepare Vojany for reverse flow mode. The pipeline was built in the 1990s to supply a gas-fired power station that never started production.

“The European Commission pressured us, so we found a compromise solution,” Marecek said. “Using the Vojany pipeline is compatible with the EU energy laws and at the same time doesn’t violate any of Eustream’s existing contracts. We had it confirmed by both the EU and Russian Foreign Minister Lavrov.”

Ukraine hasn’t received any Russian gas since June 16, when Gazprom cut off deliveries after the two sides failed to reach an agreement on future prices and debt repayment. Gazprom raised the price for Ukraine to $485 per 1,000 cubic meters in April following the ouster of pro-Russian President Viktor Yanukovych and Russia’s annexation of Crimea.

Reduce Use

Ukraine, which consumes more than 50 billion cubic meters of gas a year, will need to reduce its use by 20 percent if Russia doesn’t start supplying again, Naftogaz Chief Executive officer Andriy Kobolyev said on July 4.

During the first few months of operation, there’s a risk that Vojany won’t be able to run at full capacity should the flow of transit gas from Russia to Europe through Ukraine get interrupted, Marecek said.

During September, Vojany’s flow will be “interruptible,” which means no gas will flow if Russia interrupts supplies to the EU. Starting Oct. 1, the pipeline will offer a firm capacity of 6.5 billion cubic meters a year, while the remaining 3.5 billion will remain interruptible until March 1. Vojany’s full capacity will become available at all times only at the end of next winter, he said.

Ukraine transports about 176 million cubic meters of gas to EU countries through its pipeline network connected with Slovakia, Romania, Hungary, Poland and Moldova. The Slovak pipeline carries around 95 million cubic meters a day.

Russia decreased gas transit via Ukraine in June by 17 percent from a year earlier to 5.9 billion cubic meters, UkrTransGas, the national pipeline operator, said today.

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine, Ana Monteiro


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