EU to help integrate Ukraine in the bloc’s gas market – official

LONDON (ICIS)–The European Commission will work to ensure the integration of Ukraine in EU markets and support competition in eastern European countries as a means to minimise the impact of the NordStream 2 and TurkStream projects, an EU official told ICIS.

Klaus-Dieter Borchardt, the deputy director general of the European Commission’s directorate-general for energy, said in an interview that Ukraine could be integrated in the European gas market through at least one of the four high-pressure pipelines which travel from the Ukrainian border to the Austrian Baumgarten hub via Slovakia.

Currently 77% of the capacity of these four pipelines is booked by Gazprom, but only 60% of it is used.

When Ukraine’s transit contract with Gazprom ends this year and Russian volumes may be rerouted to NordStream 2, one of those four pipelines can be used for reverse flows between Ukraine and Austria.

Representatives of the commission, Ukraine and Russia are expected to hold trilateral talks in May to discuss the future of transit after 2020.

Borchardt, speaking on the sidelines of the “Fight for EU energy security” conference organised by Politico in Brussels, said that the commission would support the view that Ukraine should be able to offer 90 billion cubic meters/year of transit capacity towards Europe, while Russia should commit to transit to Ukraine 60bcm/year.

However, he added that Ukraine must also prepare for a future where Russian transit would be discontinued.

Russia has previously argued that the transit of gas via Ukraine would be stopped at the end of 2019 and volumes rerouted via NordStream 2, which would link Russia to Germany via the Baltic Sea.

Borchardt was sceptical that the rerouting of Russian transit via NordStream 2 would happen from next year, pointing out the pipeline required a ramp-up period, which may last until 2023.

Ukraine observers have argued that NordStream 2 was a political project designed to isolate Ukraine.

TurkStream

Borchardt said that the commission was working with Bulgaria to minimise the impact of Russia’s other major project, TurkStream 2.

The TurkStream corridor will be made up of two pipelines. TurkStream1 will have a 15.75bcm/year capacity and will absorb volumes currently shipped via Ukraine through the Trans-Balkan pipeline. These volumes are earmarked for the Turkish market. TurkStream2 will have a similar capacity and will be destined for exports from Bulgaria to central Europe via Bulgaria and Serbia.

Bulgaria has been almost entirely dependent on Russian imports and the construction of the TurkStream corridor will mean that Russia will further consolidate its position in Bulgaria, as the country is expected to become a transit route for the TurkStream 2.

The country is in the process of building a 480km pipeline that would transit the gas from its eastern part to the Serbian border. The gas is for onward delivery into Hungary via Serbia.

Borchardt said that in order to bring more competition to the Bulgarian market, the commission was working with Bulgarian stakeholders to implement a gas release programme.

This means that volumes currently imported by incumbent Bulgargaz could be auctioned off to private companies for a set period of time as a means to whip up market competition and ensure Gazprom does not tighten its stranglehold on the country.

Borchardt said the volumes and the timeframe for the gas release programme were yet to be defined.

He added that Bulgaria was interested in developing a Balkan gas hub, but noted that this may not be possible unless there were more gas volumes, including of Russian origin, brought to the market.

Trans-Balkan pipeline

He also said that the commission was in talks with Bulgaria and Russia over the shipping of gas through the Trans-Balkan pipeline. The pipeline has historically transited Russian gas via Romania, Bulgaria and further into Turkey, Greece and northern Macedonia.

Transit via this line is also covered by Ukraine’s contract with Gazprom, which expires at the end of 2019.

However, individual countries such as Bulgaria have their own transit contracts with Gazprom. Bulgaria has been shipping gas via the Trans-Balkan into Greece and the contract is only due to expire in 2030.

If the Trans-Balkan pipeline were to be rerouted via TurkStream 2, Greece may not have access to the volumes. This means that the European Commission, Bulgaria and Russia would have to find a solution for the supply of gas to Greece.

“Gazprom has an interest in negotiating the flows of gas through the Trans-Balkan pipeline,” Borchardt said.

Romania

Borchardt also mentioned the Bulgaria-Romania-Hungary corridor, an EU-backed project that is designed to ship Black Sea volumes to central Europe.

Most of the volumes were expected to be sourced in the Romanian offshore section and transported via existing and new infrastructure due to be built by 2020.

The European Commission supported the project and expects Romania, the EU’s third largest producer of gas, to help whip up liquidity and competition regionally.

Borchardt insisted the pipeline was built to bring Black Sea gas to Europe and would not be used for the transport of Russian volumes.

The official expressed disappointment at moves by the Romanian government last December to cap domestically-produced gas prices for a period of three years starting on 1 April. The government has since decided to lift the cap for industrial consumers and uphold it for households and district heating.

“Romania had made good progress [in liberalising the gas market] and we are very sad to see it backtracking,” he said, noting that the price capping measure could risk Black Sea gas investments.