Romania, Bulgaria, Ukraine to test gas flows by end of 2016

Gas flows between Ukraine, Romania and Bulgaria will be tested by the end of the year after the grid operators of the three countries signed landmark interconnection agreements on 20 July.

Romania’s transmission system operator (TSO) Transgaz, Bulgaria’s Bulgartransgaz and Ukraine’s Ukrtransgaz plan to provide shippers with firm and interruptible transportation capacity from Ukraine to Bulgaria, and interruptible reverse flow capacity from 1 October 2016. In theory, the deals will allow bi-directional virtual flows spanning the region from Ukraine to Greece, the European Commission and Ukrainian grid operator Ukrtransgaz announced on the same day.

The agreements are an important step towards opening the Trans-Balkan pipeline to third parties for the transport and trade of natural gas in the region, in line with EU rules.

The pipeline had been used by Russian producer Gazprom to supply gas to eastern Europe and Turkey as part of long-term contracts. Two transit contracts, one with Bulgaria and one with Romania are due to expire this year, freeing up pipeline capacity to private parties. The agreement with Transgaz is for the Isaccea-Orlovka interconnection border point on the Trans-Balkan pipeline.

“Western traders are very interested in the Bulgarian market,” said Sergiy Makogon, executive director of Ukrtransgaz. “We have already received a lot of enquiries about organisation of gas flows from Slovakia to Romania.” Ukrainian producers can also potentially use the agreement to export gas to Bulgaria.

Up to 20 billion cubic meters (bcm)/year can be transported from Slovakia via Ukraine to Romania and the same volume in the opposite direction, according to Makogon.

From 1 January, the exit tariff at Orlovka is $23.12/thousand cubic meters(kcm) (€20.8/MWh). The entry tariff into Ukraine is $12.47/kcm.

Earlier in June, the TSOs of Bulgaria and Greece signed a similar interconnection agreement, allowing market participants to transport gas, including from LNG sources, between the two countries. A private Greek company subsequently sold volumes to Bulgaria in reverse flow for the first time on 1 July.

The interconnection agreements were signed as part of the broader Central and South Eastern European Gas Connectivity (CESEC) initiative launched in 2015 by 15 countries from the EU, the Energy Community and the EC.

Export quotas

Previously, some producers active in Ukraine told ICIS they would be interested in exporting gas in the future.

But the export of gas from Ukraine requires obtaining a quota permit from the government. Some Ukrainian gas companies have told ICIS that a great deal of red tape would need to be overcome to obtain the permit. ICIS understands that no producer has applied for an export permit yet as spreads between the Ukrainian market and potential export destinations are not high enough to encourage exports, when transportation costs are taken into consideration.

Capacity platform

The TSOs will offer capacity from Ukraine to Bulgaria via Romania separately as an unbundled product until Ukraine chooses a platform for bundled capacity auctions.

While Romanian and Bulgarian TSOs are members of a regional capacity platform called Regional Booking Platform (RBP), Ukrtransgaz does not use any platform to allocate bundled cross-border capacity.

Makogon said Ukraine is considering joining either the RBP owned by Hungarian grid operator FGSZ, the Polish GSA Platform, or the pan-European PRISMA platform.

“We have not decided yet what platform we will join, but the choice is likely to be between GSA and RBP,” Makogon said.

He added that Ukrtransgaz will offer unbundled capacity for the Isaccea-Orlovka on yearly, quarterly, monthly and daily bases, with traders being able to book capacity for periods of up to 15 years.

Last year, Polish and Ukrainian TSOs concluded an agreement enabling bundled auctions on the Polish-Ukrainian border. But Ukrtransgaz is still not listed as a member of the GSA Platform. Polish operator GAZ-SYSTEM did not reply to ICIS’ request to comment on the matter.

FGSZ said there were ongoing discussions over Ukraine joining the Hungarian RBP, with no results announced yet.

Makogon said the delay with Ukraine joining one of the platforms was not connected to an ongoing unbundling process of Ukrtransgaz from incumbent Naftogaz.

A new independent TSO is expected to be created in Ukraine by 1 August, while its corporate structure is scheduled to be set up by 1 October, according to Energy Community Secretariat. The deadline may not be met however, as Ukraine still needs to approve a number of regulations within the market liberalisation reform launched last year.

Cheaper tariff

Ukrtransgaz is also assessing market demand to flow gas between Poland, Slovakia, Hungary and Romania via Ukraine, saying it would introduce a reduced tariff for short-haul flows.

Shippers would be able to book firm and interruptible capacity in the Ukrainian transport system, but would not get access to the virtual trading point in Ukraine, Ukrtransgaz said in a statement on 19 July.

Makogon said significant interest exists on the market for such short-haul transportation routes, particularly between Poland, Slovakia and Hungary.

The Ukrtransgaz statement said the tariff on short-distance flows would be introduced after consultation with the country’s energy regulator NERC, while Makogon added that the discount to the existing tariffs would be significant.

NERC previously told ICIS that it could not introduce an exit tariff until the parliament passes legislation enabling the agency to do that.

Ukrtransgaz also said that it would expect Poland, Slovakia, Hungary and Romania to introduce separate entry-exit tariffs for short-distance flows as it would facilitate cross-border gas trade in the region.

One source said the Ukrtransgaz proposal for reduced tariffs would be counter to draft EU legislation on this area.

But Makogon said that under the draft network code on harmonized transmission tariffs, short-haul and conditional firm capacity products can be introduced to promote efficient use of the transmission system.

Late last year, NERC approved the introduction of new tariffs for gas transit via cross-border entry and exit points in line with the country’s new gas law that came into effect on 1 October 2015.

ekaterina.kravtsova@icis.com and

aura.sabadus@icis.com