Energy 22 February, 2018 11:00 am   

Will Poland invest in gas pipelines in Ukraine?

If Poles are considering taking over shares in gas transmission pipelines in Ukraine, a number of conditions should be met to guarantee investment security. Poland should mobilize Berlin and Brussels for this purpose – writes Wojciech Jakóbik, editor-in-chief of

How much gas must flow through Ukraine?

According to Volodymyr Omelchenko, director of energy programs at the Razumkov Center, at least 50 billion cubic meters of gas must flow through Ukrainian transmission pipelines annually after 2020, to make the network profitable.

In his opinion, the government should require Main Gas Pipelines of Ukraine (MGU) to take over the transmission pipelines from Naftogaz to the management after the ownership separation required by the European Commission to maintain this level of supply through Ukraine.

– After the formation of the consortium and the selection of the partner, the Ukrainian government must set the condition to maintain the transmission of gas not less than 50 billion cubic meters annually – said the scientist. Today and yesterday (February 21 and 22), the first round of negotiations with potential Western partners for the management of gas pipelines took place. Deputy Prime Minister of Ukraine announced that seven partners had come forward, President Petro Poroshenko was speaking about 10 entities. A Polish company is supposed to be among them, perhaps Gaz-System.

The task assigned to MGU may be difficult to implement in the face of Russia’s plans, who intends to restrict supplies through Ukrainian territory after the end of the transit agreement in 2019. Due to the expectations of Germans who want to assure European partners that the contested Nord Stream 2 project will not threaten Ukraine, Gazprom declared in the past that it is ready to maintain the “minimum level of supply”, but according to the company it should be 9-12 billion cubic meters per year, which is less than the volume guaranteeing the profitability of gas pipelines.

However, the Polish government indicates that after the launch of the gas pipeline, the Russians will be independent of supplies via Ukraine. In an interview with PAP, I emphasized that the guarantees granted by Gazprom are fragile and may not be fulfilled or not to the extent that gas pipeline profitability is guaranteed. In addition to the efforts to adapt Nord Stream 2 to the requirements of European law as part of the revision of the gas directive, it should be expected that Gazprom, the only owner of Nord Stream 2, will declare a minimum level of supply by Ukraine at a certain level for a limited period.

The alternative is to increase gas supplies from the European Union. The transmission towards the east will also increase the profitability of the transmission network. This, however, will depend on the reform of the gas sector in Ukraine, which is still uncertain. The authorities in Kiev make it dependent on the outcome of the arbitration of Naftogaz-Gazprom regarding the transit agreement, the results of which are to be presented in February. If Ukraine regains its money, it will be able to modernize gas pipelines and invest in mining, which may even make it a gas exporter. If he loses, he will remain dependent on Gazprom and will have to look for money in the West. I have been writing about the opportunities and risks related to the investment in Ukrainian gas pipelines since 2013, but despite the progress of the gas reform, the situation has not yet been stabilized.

Poles are waiting for a decision

Depending on the decision on the Dnieper, the Poles will make the right decisions. If it is confirmed that Gaz-System is considering participating in the consortium managing gas pipelines in Ukraine, it should use the support of another European partner to share the risk. The European companies together with the European Commission should also push Nord Stream 2 AG and Gazprom to guarantee an adequate level of supply through Ukraine.

This requirement was set by Germany, without specifying the volume. Berlin should be encouraged to do so. The level of deliveries has been defined by the Razumkov Center. It should be verified by Brussels experts and placed as a requirement for Russians. Otherwise, legitimate arguments will remain that Nord Stream 2 will threaten the security of Ukraine, and thus the eastern policy of the European Union.

The security aspect is put together by Poland, Denmark and Sweden

This will be the premise to block the Danish section of the gas pipeline through Denmark, which from this year has the right to assess the compliance of such projects with its security and foreign policy. Poland informed that it consults the policy towards Nord Stream 2 with Denmark and Sweden, as evidenced by the growing emphasis on the security aspect in the statements of Prime Minister Mateusz Morawiecki and the Energy Minister Krzysztof Tchórzewski. Incidentally, if the European Council were not paralyzed by the German protection umbrella on this controversial project, perhaps the same premise would determine the political decision to block the gas pipeline by European countries.