„Once the current contract is over, the transit of Russian gas via Ukraine as it is now will end. There is no political will in Brussels or Kyiv. Russia believes that its fuel will be needed by the Europeans, but this will not happen,” says Yuri Onyshkiv, an analyst at Refinitiv, a British-American market data provider, in an interview with BiznesAlert.pl.
- I work as an analyst at the London Stock Exchange Group and we have recently published a report on the transit of Russian gas. After the current contract ends, we believe transit on the basis of such an agreement as before will not continue.
- An interesting question arises about the volume of potential transit without a contract. Now we are talking about 12-14 billion cubic meters annually for Slovakia, Austria and Italy. Italy, like Poland, is located by the sea, has LNG terminals, has other pipelines, for example from Azerbaijan, and can diversify supplies from different directions.
- After all the disputes with Naftogaz and Gazprom they stopped selling and we stopped buying. So we bought gas at market prices from Europe, whether on the basis of spot or long-term contracts.
BiznesAlert.pl: Will there really be no transit of Russian gas through Ukraine by the end of 2024?
Yuri Onyshkiw: I work as an analyst at the London Stock Exchange Group and we recently published a report on the transit of Russian gas. After the current contract ends, we believe transit on the basis of such an agreement as before will not continue. There is no political will. Neither in Brussels nor in Kyiv, although Russia very much wants to extend this transit, because, in their opinion, Europeans will need their fuel. So the contract between Ukraine and Russia will not be extended, but it may happen that it will be technically possible to transmit the gas provided that Russia will sell the gas at the entry point on the border with Ukraine, and not, as it is now, at the border between Ukraine with the rest of Europe where Russia sells its fuel to Slovakia or Moldova. Russia has the opportunity to sell gas „at the entrance”, for example, in Sudzha, just outside the Sumy region, in the north of Ukraine. Then the interested European countries can reserve the amount of gas, buy it on the border of Russia with Ukraine and transport it further. GTS (operator of gas pipelines of Ukraine-ed. ) said that such a technical possibility for booking „at the entrance” will be available. This means that there will be no contract, but the legal and technical possibility for transit for individual European companies will remain. So, for example, Slovakia currently buys gas in the Netherlands and transports it through other countries to itself – it didn’t sign a contract with them and only uses interconnectors, books capacities and pays relevant fees to each operator in respective states.
Will Europe be interested in Russian gas? Some states don’t seem to have a choice.
I conducted an international webinar a few days ago, where I asked the participants if they thought that from 2025 European companies will reserve capacities for gas transit through Ukraine, and the participants divided exactly in half. And these were market participants, not laymen. And some of them say that this transit will continue.
I wonder what countries they were from.…
I don’t know, but I think northwest Europe, maybe Germany, France, a few from Norway, maybe someone from Ukraine, Slovakia and Austria. The latter two countries are highly dependent on Russian gas.
Poland somehow manages to do without Russian gas as well as coal, but earlier, its imports had been really high…
Yes, you even bought a little coal from the occupied Donbass, I remember (a reference to the book „Black Gold. The war for coal from Donbass” on the import of anthracite from the occupied territories of Ukraine, where Yuri was one of the commentators-ed.). Returning to gas, an interesting question arises about the potential volume of transit without a contract. Now we are talking about 12-14 billion cubic meters annually for Slovakia, Austria and Italy. Italy, like Poland, is located by the sea, has LNG terminals, has other pipelines, for example from Azerbaijan, and can diversify supplies from different directions. Italy was recently very dependent on Russian gas, but quickly switched to other sources of this fuel. They have prepared for this and they can do without Russian gas, especially since they are planning to build more terminals. The situation of Slovakia and Austria is more difficult because they do not have access to the sea. But they, in turn, can import gas through third countries, such as Poland, Hungary or the Czech Republic, and so they can, for example, buy gas from Denmark. Austria, on the other hand, has interconnectors with Italy and Germany, and they can also make do. The question, of course, is what will be the price of switching to other sources of gas, because it is known that fuel from Gazprom as well as transport through Ukraine were cheap. These are, of course, questions about the market, but also about politics, when Brussels says that it is necessary to become independent of Russia. After all, there is a REPowerEU program that talks about complete independence from Russian fossil fuels in the coming years. America, in turn, imposed sanctions on Arctic LNG, and it still does not work, although it was supposed to start in early 2024, and European companies had signed contracts with Novatek, but withdrew. To sum up-some European countries will have it more difficult from 2025. But harder doesn’t mean impossible. Part of the alternative is also Turkish Stream, because there is free capacity, and Russian gas also flows there, there are also interconnectors.
If there is no Ukraine-Russia contract, who will receive money for the transit?
When European companies contract „at the entrance” to Ukraine, they will pay the Russian operator for the exit from that system, Ukraine „at the entrance” and continue to pay such fees at every stage, to every gas pipeline operator, in every country. Pipes are a monopoly. There is no alternative. Of course, it may also happen that the Ukrainian legislation will prohibit even such transit, but so far I do not expect such a scenario and nothing indicates it may happen.
Ukraine has not bought Russian gas since 2014. You have your own, but how are you managing?
After all the disputes with Naftogaz and Gazprom they stopped selling and we stopped buying. So we bought gas at market prices from Europe, whether on the basis of spot or long-term contracts. Annual consumption was at about 30 bcm, 2/3 of which we covered with our domestic production. Since the full-scale war, gas consumption in Ukraine has fallen, either because of the occupation or because of the closure of large enterprises, such as the steelworks in Mariupol. The consumption dropped by about 1/3, therefore, practically now Ukraine secures its demand with domestic mining, after de-occupation, mining resumed in some places, for example, in the Kharkiv region. Sometimes we import a little, e.g. from Norway through Poland. Last winter, however, we managed to get by on Ukrainian gas and imported electricity. And this winter, compared to the previous one, we managed to survive almost without shutdowns.
This is exactly what I was going to ask, because the energy situation was completely different than a year ago, and after all, Russia has not reduced the number of attacks on critical infrastructure, as we are talking today (March 22, 2024 – ed.) it used 151 missiles and drones mainly against power facilities. What worked? Was Ukraine prepared better for the crisis situation?
Preparation is one thing. At the end of last winter, Ukraine began to receive solid air defense systems from Europe and the United States, including Patriots and NASAMS. And that has yielded clear results. Previously, our air defense was not able to defend everything. This winter it was just better. Of course, there is no complete defense, because at the time of this interview Kharkov, Zaporozhye or Dnieper are without electricity, because the air defence is not as strong as it is in Kyiv there, but I think that many critical facilities are protected by the air defence effectively. There is another aspect of the „better winter” this year – we have increased our ability to import energy from Europe, with whose energy system we have been connected practically since the first days of the full-scale war, because before we had been connected only with Russia and Belarus. After all, at the very beginning of the aggression, right after plugging into the European system, we were still exporting electricity. In October 2022, we had to stop because our energy sector started to come under fire and we had to secure internal supplies. But now we have lifted the ban on the export of electricity provided there is a surplus. And we used import opportunities this winter instead of, for example, increasing purchases of coal from abroad. So we managed to balance the system. And I am sure that Friday’s failures will also be quickly remedied, because all the services are working on it.
I need to ask my favorite question, which is about the Widełka-Chmielnicki connection. It has not worked for almost 20 years, for whom is it more important today?
It seems to me that it is equally important for both sides, because it gives an opportunity to balance the energy market. This interconnector can be compared to a straight road for a car. You’re just driving, not circling. And for Poland, it is an opportunity to import cheaper energy than, for example, from Germany. This was a win-win investment for both sides.
Chmielnicki is a nuclear power plant. So, can we say that today, in the context of a full-scale war, nuclear energy is safe? I remember when at the beginning, in April 2022, I was interviewing President Volodymyr Zelensky and he said that on the anniversary of Chernobyl, the Russians launched missiles at all Ukrainian NPPs, fortunately, you managed to shoot down all of them…
Today, Russia is showing that there is no full security anywhere in Ukraine. The greatest danger is, of course, the occupied Enerhodar and the Zaporozhye Nuclear Power Plant, but other territories are not safe, if only because there is no complete air defence. Of course, no one knows where air defence is deployed and it should stay this way, but it should be assumed that it protects critical infrastructure facilities. But there is no 100 percent safety anywhere in Ukraine, and this does not apply only to nuclear power plants. Of course, there are places that are more and less dangerous, but nobody’s safety can be completely guaranteed in Ukraine.
Is what happened on Friday Russia’s revenge for the drone strikes on their refineries?
It is difficult for me to unequivocally answer this question, because I do not know how long it takes to prepare such a massive attack. If it takes a few dates it is possible the answer is yes. But they just hate an independent Ukraine and I think they might as well send 151 of their missiles and drones one day for no particular reason, because they just want to destroy Ukraine and they don’t even need any excuse.
Interview by Karolina Baca-Pogorzelska