You're reading: Reverse-flow gas dream comes true

The prime ministers of Ukraine and Slovakia turned on the tap to a potential 10 billion cubic meters of natural gas per year for Ukraine on Sept. 2, as together they unveiled the Vojany-Uzhgorod pipeline in the Slovakian border town of Velke Kapusany.

Ever since Russia’s Gazprom suspended gas supply to Ukraine on June 16 over debts and pricing, Ukraine has only been receiving a trickle of gas from central Europe and relying on stored supplies to keep industry going. Ukraine consumed 50 billion cubic meters (bcm) of gas last year and is expected to consume around 46 bcm this year. Hitherto, Russia has accounted for over half that volume, with most of the rest coming from domestic wells.

The Vojany-Uzhgorod pipeline is considered a “little reverse-flow” because it is an additional pipe built across the border in order to avoid Gazprom claims that it has the sole right by virtue of European contracts to use the trunk pipeline connecting Ukraine and Slovakia. The gas Ukraine imports from Slovakia, Poland and Hungary is referred to a “reverse-flow” gas because it was sourced from Russia, transited mostly through Ukraine to Europe, and then pumped back into Ukraine by separate agreements that do not include Gazprom.

“Thanks to the opening of the reverse pipeline from Slovakia and the possibility of Ukraine to receive gas from Europe, we can replace 40 percent of the gas we were buying from Gazprom,” said Prime Minister Arseniy Yatsenyuk, adding that this is a key step towards Ukraine achieving energy security and effectiveness.

The prime minister was quick to assert European unity on this project. Addressing Prime Minister Robert Fico of Slovakia, he said, “Together we have achieved a great amount of work.” Yatsenyuk expressed gratitude to the European Commission, which was represented at the event by director of the department of internal energy market of the European Commission Klaus-Dieter Borchardt: “Six months ago, few people had hoped that we would with joint efforts be able to purchase from the EU to 10 bcm of gas. This is a very big step forward. We have overcome all political and technical difficulties, and demonstrated that we are united.”

However, even 10 bcm might be wishful thinking. EU Energy Commissioner Guenther Oettinger confirmed that the 28-nation bloc was committed to reverse-flow gas to Ukraine, but Ukraine could count on no more than 8 bcm through Slovakia as part of the “minor reverse-flow scheme” at a meeting with Ukraine’s Energy and Coal Industry Minister Yuri Prodan back in June.

At a test on Aug. 30, the new pipeline was flowing at 27 million cubic meters per day.  The Slovakian gas transit company Eustream said that the flow will become permanent from March 2015 and that Ukraine’s Naftogaz has reserved the right to use the pipeline until 2019.

Awaiting the big flow

In June, Ukraine asked the European Union to sell up to 30 bcm of gas per year using a reverse-flow scheme. Ukraine has been receiving gas from Poland since April 15 and from Hungary since May 20, although the amounts have been small. In June, Ukraine received 315.8 million cubic meters altogether of reverse-flow gas from Europe. 

The Vojany-Uzhgorod little pipeline has been under construction since Viktor Yanukovych was president, but his government only half-heartedly pursued the reverse-flow gas scheme. In 2013 Ukraine bought from Europe only 2 bcm, contracted from Germany’s RWE and transited via Poland.

For Ukraine to get the big flow of 30 bcm, it would have to use the trunk lines, which are now contracted to Gazprom. However, Ukraine and Russia are at logger-heads over just about every aspect of gas relations. Gazprom is demanding the repayment of debts that are greater than what Ukraine acknowledges; Gazprom is offering a sale price that is above what Ukraine is willing to pay, and just as important Ukraine wants a pricing formula that conforms to European market standards. Until now, Gazprom has set its own pricing formula that heavily favored the supplier.

Ukraine wants Gazprom to sign transit contracts for gas heading to Europe with Ukrtransgaz – not Naftogaz – in an open and transparent manner in accordance to European and Ukrainian regulations. Until now, Gazprom has been using Naftogaz as a “virtual” transporter of its gas, which allowed it to sign gas contracts with Europe without Ukrainian participation.

Yet another obstacle to Ukraine and Europe achieving a transparent, regulated and market-oriented gas transit system is Russia working furiously to avoid being brought to book through potential blackmail schemes. The Ukrainian government issued a warning that Gazprom tore up the gas balancing contract with Ukraine back in June, which ensured equalized pressure of flows entering and leaving Ukraine. Imbalance would give Russia the reason to shut off the taps and blame Ukraine, as the transit country. In exchange for keeping the gas flowing, Europe would have to not aid Ukraine and exempt the proposed South Stream gas pipeline and the existing OPAL pipeline, which links the Nord Stream pipeline with Germany, from the 3rd Energy Package, which demands non-discriminatory use of pipelines and shared ownership.

At the moment, these issues are being reviewed by European courts.

Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].