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GAS 27 February, 2019 10:00 am   

Ukraine can bargain with Poland for a while


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The Ukrainian Energy Forum is starting. Ukrainians are in a better situation than a few years ago and are bargaining with Poland for gas supply conditions. However, the good streak may soon end – warns Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.

Ukraine is waiting for Poland

BiznesAlert.pl determined that there is still a long way to go to sign a long-term contract between PGNiG-Naftogaz and the construction of the Poland-Ukraine gas pipeline on the Ukrainian side.

Naftogaz’s representatives argue that natural gas supplies from Poland to Ukraine could increase under the condition of an attractive offer, which is better at a gas connection with Slovakia. They add that deliveries from Poland are important for security of supply and will be taken into account in the case of its threat until the price of supplies is attractive. They admit that, for now, the new re-export of LNG by Poland is not encouraging enough.

However, after 2022, PGNiG’s portfolio is to be subject to changes due to the start of deliveries of US liquefied gas from long-term and Norwegian contracts through the planned Baltic Pipe gas pipeline. Then Naftogaz may get a better offer. The company’s representatives admit that the competitiveness of the Polish market is limited by the Act on mandatory reserves of natural gas, which Slovakia does not have.

However, if it is possible to improve the attractiveness of supplies from Poland to the Ukrainian market, Naftogaz could bring in even 2,5 billion cubic meters of gas annually depending on the supply portfolio from other directions. Poles already deliver almost 2 billion cubic meters of natural gas to Ukraine annually via ERU Trading.

Ukrainians do not intend to build a gas connection between Poland and Ukraine. Representatives of Ukrtransgaz argue that Poland or the European Commission should co-finance a project whose implementation depends on the construction of the section on the Ukrainian territory. Naftogaz does not consider the project as a priority due to attractive alternatives, eg deliveries through Slovakia.

BiznesAlert.pl interlocutors in the Polish gas sector remind, however, that the position of Ukrainians may be negotiable.

Small stabilization

Ukraine can afford such a game because it won the arbitration dispute with the Russian Gazprom and found itself under the umbrella of the European Commission in negotiations on the future of natural gas supplies after the end of the current transmission contract. Despite the construction of Nord Stream 2 and Turkish Stream, Russian Gazprom will still need part of the capacity of the Ukrainian gas pipelines, so talks about the agreement. This scenario makes the revision of the European Union’s gas directive likely to delay Nord Stream 2.

The Commission would like a new transmission contract compatible with European regulations to be signed after 2019, but the Russians count on a temporary agreement. – For the moment, the trilogues have not brought any concrete results. Any arrangement in the coming months is unlikely, because the Russians are waiting for the result of the elections in Ukraine and a potential change of leadership, which could be a chance for them to sign another political system of the kind known before 2014 – said Roman Nitsovych from the Dixi Group, a think tank involved in the reform of the gas sector in Ukraine.

If Ukraine wanted a deal with Russia, it would be possible to prolong the contract currently in force: without antitrust legislation of the European Union, but with a ship or pay clause establishing a minimum volume of gas transmission from Russia through Ukraine. The change of power in Kiev could lead to such a scenario, but for the time being the positions of Kiev and Brussels are convergent. Both parties want the new agreement with Russia to implement the regulations of the third energy package in Ukraine, which implements the reform of the gas sector with varying success, still unable to separate the independent operator of gas pipelines. In the meantime, this is a sine qua non condition for the development of Western investments in the gas pipeline in Ukraine.

Uncertain future

Meanwhile, problems described elsewhere appeared on the horizon. The program of Ukraine’s independence from gas imports will be implemented five years later, if at all. Western investors are still waiting for new advances in gas reform with further investments on the Dnieper. The next meeting of the EC-Ukraine-Russia will take place in May after the presidential election. – It is in Gazprom’s interest to prolong calls until the end of 2019 and even until early 2020. It would be an ideal moment to trigger another gas crisis and blackmail – warns Nitsovych.

The last “gas crisis” occurred in March 2018 and then PGNiG delivered over 60 million cubic meters over the Dnieper. natural gas. The Ukrainians revealed that they have data confirming that the crisis was caused by Gazprom on purpose. If there was a new crisis in 2020, supplies from Poland may be needed again. However, the prices of intervention imports are significantly higher than the standard prices. This prompted some of the Ukrainian public opinion to speculate that Poles want to make money on the problems of Ukraine, which was picked up by pro-Russian propaganda in this country.

It is actually different. Ukraine may be an attractive market for gas from Poland, and warehouses on the Dnieper an interesting investment for our transmission pipeline operator. However, the ball remains on the Ukrainian side and the future of this cooperation depends on its actions. Bargaining in the period of temporary success in the gas market can take revenge in more difficult times after the presidential election, when Kiev will turn pro-Russian or will need Poles’ help again. In addition, cooperation and integration with the Polish gas market will be an element of combining the Ukrainian market with the European Union through the Energy Community.

Talks on this topic will be an important element of the Ukrainian Energy Forum in Kiev, which will include BusinessAlert.pl reporters.