To prevent Gazprom form creating artificial gas shortage, Europe must work to end Gazprom’s export monopoly – states German Galuschenko, energy minister of Ukraine in an interview for BiznesAlert.pl.
BiznesAlert.pl: What are the prospects of further cooperation between Poland and Ukraine in Nord Stream 2 case?
German Galuschenko: Cooperation between Poland and Ukraine in a great part affects the security of the continent. For centuries, we have been working together to protect Europe from aggression coming from the East. Our countries share the opinion that Nord Stream 2 is a geopolitical, not a commercial project. Its goal is to create an artificial deficit of natural gas in Central and Eastern Europe. Gazprom is already using its monopoly position to keep gas prices on the European market at record high. If Gazprom is able to concentrate all gas transit in the pipelines under its own control, this will give the Kremlin new powerful leverage to interfere in the EU affairs. Like many other Europeans, we are astounded by the brazen lobbying with which Nord Stream 2 is being rushed through the approval process. All the while, we see corners being cut, and the letter and spirit of EU energy law and climate goals are being disregarded. Our Polish colleagues do not miss the opportunity to bring these violations before the European Court, which brings my respect and admiration. At the same time, it is obvious that the vote of Poland alone or Ukraine alone is not enough to counteract this process. Together, we are creating the level of resistance without which this pipeline would have become operational a few years ago. We must continue exerting this kind of pressure, especially in Brussels, Washington and Berlin. Our actions will affect when and under what conditions this facility will start working, if it does.
Will Nord Stream 2 (NS2) become operational? When?
Here we have two aspects – when NS2 is completed, and when it will be put into operation and on what terms. The construction will be completed in September 2021 at the earliest. Which is, basically, tomorrow. There are questions about certification and conditions of commissioning. Here a lot depends on the German regulator – i.e., whether the EU Third Energy Package will apply to NS2. Gas trading and transportation cannot be controlled by the same person or group of persons. In the case of NS2, we see a clear violation of this rule. Exceptions to this rule can be granted only in clearly defined cases, including common interests of other EU member states, public necessity, etc. That is not the case with NS2, unless Russia destroys the gas pipelines that deliver gas to Ukraine and Poland for transit. There is a risk of such eventuality; it is rather significant, and we are discussing it with our partners in the West.
What are the prospects of Poland and Ukraine cooperation in face of U.S.-Germany declaration on NS2? On what platforms can we cooperate?
In fact, it is important for Ukraine and Poland that the US-German declaration states that Germany will adhere to the letter and spirit of the Third Energy Package with regard to NS2 to ensure the separation of trading and transportation of natural gas, as well as third party access. Also, from the legal point of view, we have a ruling of the European Court of Justice on OPAL, which, in my opinion, imposes an obligation on the German regulator to take into account the interests of other European countries in the certification of NS2. For the energy security of the region south and east of Baumgarten, it is important that 40-60 billion cubic meters of gas a year should come from the east. A bottleneck in the regional infrastructure is the Lanžhot interconnector between the Czech Republic and Slovakia. Relying solely on it, countries from Italy to Poland will be physically experiencing shortage of gas. Which is a direct way for Gazprom to manipulate and for Russia to exert political pressure on these countries. Since this is the sole gas supplier, and its actions are fully coordinated with the Kremlin, gas consumers must also act as a united front to protect their interests. Solidarity here is a matter of security, not just the ideology of a united Europe.
What is the role of Energy Community, European Commission? How unilateral Germany policy is influencing that?
The European Commission is essentially a body that is designed to ensure solidarity and energy security. Gas prices on the European market are at an all-time high. Since last year, they have grown 9-10 times! European households are sure to notice this in their utility bills already this winter. European industrial consumers are forced to incur additional costs and lose their competitive position. Gazprom, meanwhile, reports record profits for the first half of 2021. In winter, economic blackmail can be replaced by gas chokehold. There is a record low volume of gas in European storage facilities. The existing reserves are probably largely controlled by Gazprom. This is no longer a question of the national interests of individual EU member states. Europe has found itself in the midst of an energy crisis, and it is time for the European Commission to intervene before it becomes catastrophic. As far as we know, Brussels is already informed and concerned about what is happening. Cooperation with Poland is very important for us, because you are a member of the European Union and can support our common position through its institutions. In fact, the Energy Community was created specifically to unite the energy markets of the EU and neighbouring countries into a common European market. Neighbours, such as Ukraine, are adopting European energy market rules and standards into their legislation for the sake of mutually beneficial cooperation in the future. We strive to expand the extent of application of European legislation so that Ukraine could fully integrate into EU energy markets. This applies to our desire to have the option of applying to the European antitrust authority, the European Court of Justice, to participate in regulations on energy security and solidarity, which share risks between EU member states. On this dimension, we are working closely with the European Commission and other Western partners.
What are the prospects of natural gas and electroenergy cooperation between Poland and Ukraine in the context of further integration?
Ukraine is a large and stable market with considerable domestic production, powerful infrastructure in gas transportation and storage. The unification of our markets means greater stability and security for all countries in the region. European gas consumers are lacking a unified voice in the confrontation with Russia. So, we have no choice but to unite, this is a win-win strategy. This is the focus of by the Ukrainian-Polish Intergovernmental Commission on Economic Cooperation, which is looking at areas of common interest for cooperation and discussing potential projects, including in the energy sector. The obvious step is joint counteraction to critical situations, including NS2. In addition, Ukrainian companies are also interested in expanding cooperation with Polish energy companies on the transportation and storage of natural gas in Ukrainian underground storage facilities. We also have a project for transportation of various types of oil via the southern arm of the Druzhba pipeline to Central and Eastern Europe. It is important for us that Poland provides political and technical support for the synchronization of the Ukrainian power system with the European ENTSO-E network. Next year we are going to disconnect our power system from parallel operation with the power systems of the Republic of Belarus and the Russian Federation. There is also technical cooperation – to achieve synchronization it is necessary to implement the project of a 750 kV overhead line between Khmelnytsky NPP and Rzeszów.
What are the issues coming from NS2 deliveries to CEE? Is it possible that Poland and Ukraine compete for Russian gas in the region?
Ukraine’s gas transportation system (GTS) was built back in the Soviet era mainly to transport large volumes of gas from gas fields in Russia to Europe. Reverse supply was not a part of the plan. Accordingly, for us, the termination of transit is not only a reduction in the revenues of the Gas TSO, but also technical challenges. For example, 45% of gas imported in 2020 entered Ukraine through the “virtual reverse” mechanism. If there is no transit, traders will not be able to use this mechanism. This will lead to changes in the domestic market, which is a significant risk to the country’s energy security and will hike up gas prices in Ukraine. Gas TSO’s internal tariff for gas transportation will also increase. After all, most of the fixed costs of maintaining Ukraine’s large GTS are now covered by revenues from transit. There is also a risk of missed opportunities to import gas to Ukraine from new sources of supply due to Gazprom artificially blocking of alternative routes. With the transit ceased and NS2 in operation, Ukraine risks being left without options on how to deliver gas from new sources of supply. Today Gazprom is reserving the capacity of neighbouring gas TSOs for an early period, without actually using them. The geopolitical dimension is also important for Ukraine. Having to carry out the transit of gas through Ukraine restrained the potential intensification of Russia’s aggression on the territory of Ukraine. On the other hand, Europe’s need to receive gas through our territory has contributed to Ukraine’s international support, including in the form of sanctions against Russia. Without gas transit, Ukraine is left alone with its financial, technical and security challenges. That is why it is important to remember the US-German declaration here, as it emphasises the importance of counteracting Russia’s attempts to use energy as a weapon. Ukraine has already seen many examples of such use. In fact, the current rise in gas prices in Europe due to Gazprom’s manipulations is also a “weapon.” Therefore, I very much hope that the declaration’s underlying principles will be implemented. Poland has a plan to supply gas from other sources, through the Baltic Pipe or LNG terminal. But, first, there is the issue of delivering physical volumes of gas from these sources to the south of Poland. At present, these regions rely on gas transiting through Ukraine and are still not fully integrated with the rest of Poland’s gas transmission network. Decarbonisation is likely to further increase the region’s gas needs. Secondly, Russia’s aggressive behaviour in the gas market will affect Poland, even if it, like Ukraine since 2015, does not buy a single cubic meter of gas from Russia due to price considerations. Last year, Gazprom supplied about half of its imported gas to the EU. The company has all the leverage to manipulate volumes and prices, which it is now actively using. To prevent Gazprom form creating artificial gas shortage, Europe must work to end Gazprom’s export monopoly and open competition for the European market from other suppliers in the east. This is a complex and ambitious project that the European Union could succeed in being virtually the sole buyer of gas exported by Gazprom. Germany’s role of is very important here, and Poland and Ukraine could be natural drivers of this process.
What are the prospects of cooperation in hydrogen and energy transition fields?
Ukraine and Poland are natural allies in terms of energy transition, because we are facing similar challenges. Although in Poland the share of coal-fired thermal generation is higher than in Ukraine, in our country it is also quite significant – almost 30%. At the same time, 100% of the generating capacity of coal-fired power units has exhausted their design usefulness, and 90% have crossed the threshold of physical wear. Therefore, Ukraine is planning significant steps to decarbonise its energy industry. We intend to decommission obsolete coal-fired thermal power plants. A mandatory condition and one of our first necessary steps in this dimension is the synchronization of the Ukrainian grid with the European ENTSO-E network, and the integration of the Ukrainian electricity market with the European one in 2023 or even earlier. All this will become an important part of the process of general decarbonisation of the European Union’s electricity sector. As part of the decarbonisation of Ukrainian energy, we plan to attract investment in the construction of load-following generation assets to replace the first decommissioned coal-fired power plants, as well as in battery and other energy storage. So, we have the potential to cooperate with the Polish private sector. Of particular importance for our countries is the exchange of experience in the issue of fair transformation of coal regions. After all, the refusal to use coal will lead to the closure of mines and thus brings about serious social challenges. We are already launching two pilot projects in this area together with international partners, and are planning to launch two more in the near future. I think that our countries will only benefit from the exchange of information about our common experience in such projects. Hydrogen is a prospect that’s a bit further off in the future, but the strategy for the development of future hydrogen energy must be created now. Ukraine is planning to create a concept paper together with international partners this fall. We know from negotiations with our Polish colleagues that you are currently considering the production of “blue hydrogen” from gas. At the same time, the European Union sees Ukraine as a strategic partner in the supply of “green hydrogen” produced using renewable energy sources. Still, so far it is rather cost-prohibitive. For Ukraine, it may make sense to develop pink hydrogen from nuclear energy. As you see, there are many alleys to explored. We need to investigate technologies, regulatory framework, and pilot projects. Therefore, I am convinced that Ukraine and Poland should also keep a lively dialogue on cooperation in hydrogen energy.
Interview by Wojciech Jakóbik