News.Kyiv.Me.

Ukraine’s dreams undented as Gazprom submits new bill

Ukraine’s goal of becoming gas independent within five years is fuelled by the need to reduce dependence on Russia, a need that has grown more urgent since Gazprom submitted a new multi-billion dollar take-or-pay bill to Kyiv on Wednesday.

Ukraine’s five-year aim will be achieved through greater energy savings and a projected rise in domestic gas production, the chief executive of Ukrainian state-owned Naftogaz Ukrainy said on Monday.

“Households are consuming approximately 21 billion cubic metres of gas per year, for heating mostly. That volume will decrease,” Andriy Kobolev told journalists at Naftogaz’s Brussels office. “We will require less gas [this year] than we purchased in 2015. However, we do not disclose the exact projection because we do not want to move the market,” Kobolev added.

According to data from the International Energy Agency, gas consumption in Ukraine fell from just under 75 bcm in 2000 to around 50 bcm in 2013. Domestic production stands at around 20 bcm/y, but that will likely rise as the privatisation of the Ukrainian gas sector makes gas production in Ukraine more economically attractive, Kobolev said.

“In 2013 the decrease [in gas consumption] came mostly from the fact that […] industrial consumers were consuming less. In 2015 the decrease came from the fact that […] people have become more cautious, they have changed their behaviour in consuming gas,” Kobolev said.

Jonathan Stern, chairman of the gas research programme at the Oxford Institute for Energy Studies, suggested Kobolev’s ambitions were realistic but depended on certain potentially unpopular reforms.

The academic said he believed Ukraine could lower its gas demand to 35 bcm, “but only from 2020 onwards”. Ukraine’s gas consumption stood at 38.4 bcm in 2014, according to BP data.

“It could also increase domestic gas production substantially – theoretically Ukraine should be a very rich country – but this will all depend on the reform of household prices, which is generally unpopular,” said Stern.

Another multi-billion dollar bill for unused Russian gas, which Naftogaz received on Wednesday morning, highlights the need for Ukraine to improve energy efficiency and reduce its reliance on its powerful neighbour.

The bill amounted to $2.55 billion and was to cover gas not taken under the contract for Q3 2015, the minimum amount of which was 10.49 bcm, according to Gazprom. The Russian company said it should be paid within 10 days.

Russian gas ‘most expensive’

Ukraine is not importing gas from Russia because storage, domestic production and imports from EU countries are enough to meet demand for the time being, Kobolev told journalists. “It is a matter of who offers the best price,” he said. “At this point in time Russian gas is way more expensive than [any of our] new suppliers.” However, he did not rule out that Russian imports could be necessary during a cold spell.

Gazprom and Naftogaz have been clashing for years over what Ukraine should pay for Russian gas and its associated debt. Arbitration is ongoing in a Stockholm court, and Kobolev said he hoped the dispute would be settled later this year. Gazprom’s latest bill brings the total it is claiming from Naftogaz to $31.75 billion.

Earlier this month, Naftogaz also filed a complaint with the European Commission over Gazprom’s Nord Stream 2 project, which some fear could eliminate Ukraine as a transit route for Russian gas when the current transit agreement expires in 2019. The view from Kyiv is that Nord Stream 2 does not fulfil the unbundling requirement under the EU’s Third Energy Package as Gazprom would control both production and transmission.

“In its current setting the project clearly fails to meet the applicable unbundling requirements […] since the persons in control of the project are active in production and/or supply of natural gas,” Naftogaz said in its letter of complaint.

Meanwhile, Kobolev said Nord Stream 2does not make economic sense and that the project is all about weakening Ukraine’s position as a transit country for Russian gas.

“We treat Nord Stream 2 as a political project which should be analysed from a political angle. Our assumption is no matter how expensive it is, Gazprom will still try to implement the project,” Kobolev said.

“No matter what the price for transit for Russian gas […] though the Ukraine – even if it is made lower than it is now – Gazprom will still insist on building Nord Stream 2. It is not a matter of commercial interest, it is a matter of winning the war with Ukraine,” he said.

Kobolev said he expected to meet Gazprom representatives later this month to discuss transit arrangements beyond 2019. The parties will also discuss the ongoing dispute regarding gas flows on the Ukrainian-Slovakian border, which Naftogaz says are restricted because of exclusive rights given to Gazprom. The issue is expected to be settled in arbitration in Stockholm towards the end of this year or early 2017, Kobolev said.