Translated material
Cooled pipe
Russia and Ukraine have concluded a gas peace deal, but Europe will not feel it right away
On January 19, the heads of Gazprom and Naftogaz of Ukraine, Alexey Miller and Oleg Dubina, in the presence of the prime ministers of the two countries, Vladimir Putin and Yulia Tymoshenko, signed 10-year contracts for the supply of gas to Ukraine and the transit of Russian blue fuel to Europe. After this, the chairman of the Russian government said that Gazprom had received the command to begin gas transit in all directions,” and expressed hope that the Ukrainian partner would promptly restore “the normal operation of its gas transportation system.” The head of the Cabinet of Ministers of Ukraine promised: “For Europe there will be no delays from Ukraine, technically everything will be done efficiently.”However, Putin and Tymoshenko did not name the exact time for restoring gas supplies to European consumers, which representatives of the European Commission publicly demanded immediately after the announcement of the Moscow agreements. From the White House, the Ukrainian Prime Minister went to the Gazprom office, where at the time the issue was handed over, she continued to discuss the details of the resumption of supplies. Most likely, in order to comply with formalities, Gazprom will submit a technical application for gas supplies through all GIS in a pre-conflict mode, and at 10 am, if Naftogaz is ready, it will begin to increase the pressure at the entrance to the system.
This is understandable; the Ukrainian system should first be rebuilt into a normal mode, and then smoothly prepared for the transit of gas from East to West. Firstly, this takes time (according to various estimates, from 12 hours to two days). Secondly, the complete non-resistance of the parties, demonstrated in Moscow, does not look so clear in Kyiv. Although Ms. Tymoshenko said yesterday that before leaving for Moscow, she met with President Viktor Yushchenko and informed about the “achieved agreements.”
Among other things, it should be taken into account that after the cessation of transit, the Ukrainian system found itself in a mode of falling (and significantly) pressure. Speaking in technical jargon, during this time the pipe managed to “cool down” and, according to the laws of physics, “shrink” from cooling. After increasing the pressure, the seams will be under new load and any defects, excessive wear or anything similar can lead to an accident, and more than one. One of the gas transportation technical specialists interviewed by Vremya Novostei, when asked whether it was possible to somehow minimize the risk of system failure after such a long downtime, answered: “Bring emergency services to full combat readiness and pray.”
It is also worth remembering that yesterday was suspiciously reminiscent of the events of December 31, 2008. As you know, on that day, Gazprom and Naftogaz specialists were intensively polishing documents. Moscow was waiting for the arrival of the Ukrainian delegation led by Yulia Tymoshenko to sign the same 10-year contracts in the presence of the prime minister (there were minor disagreements on the base price and transit rate, but they were easily overcome). Then, under the influence of “certain factors,” the Prime Minister of Ukraine did not fly to Russia, and Gazprom announced that Naftogaz had unilaterally withdrawn from the negotiation process. An open conflict began, which led to the cessation of supplies, then transit and the cessation of gas supply with Russian fuel to a number of European countries. There are many different versions expressed as to why the formalization of the agreements fell through. Some observers say that President Viktor Yushchenko gave other directives to the head of Naftogaz, thereby nullifying the negotiation achievements. Others hint that Tymoshenko herself began to insist on replacing RosUkrEnergo in the gas supply scheme from Ukrainian underground gas storage facilities with another trader. Still others believe that Moscow has suddenly toughened its position.
Yesterday the day started the same way. The Ukrainian delegation was about to take off from Boryspil airport, and there was a tense wait in Moscow. At three o'clock it became known that Ms. Tymoshenko had spoken on the phone with Mr. Putin, and an hour and a half later she arrived at the White House for negotiations. Then the final negotiations, signing of documents and statements to the cameras.
What Vladimir Putin and Yulia Tymoshenko said sounded like a very close alliance. “In conclusion, I would like to emphasize that Russia has built relations with our partners in the CIS countries on market principles for a long time. With everyone, with the exception of Ukraine,” said the Russian Prime Minister. - Ukraine was the last country with which we were unable to do this. And the fact that the government of Yulia Vladimirovna Tymoshenko agreed to such a settlement on transparent market principles, I believe that this is indeed a very important step in the development of our cooperation in the energy sector, which is certainly the most important component of all economic ties. You and I know well that economics is always the basis of interstate relations. I also want to say that, for our part, we, of course, will do everything to support Ukraine. And in today's difficult economic and financial conditions. We have a lot to talk about, bearing in mind the fairly high level of cooperation between our economies.”
Vladimir Putin added that solving gas problems “will unblock a number of other issues in the sphere of economic activity,” without specifying what exactly is being discussed. The guest wholeheartedly thanked Mr. Putin for the price discount, which will enable Ukraine to better prepare for the transition to European prices and will allow saving $5 billion on gas in 2009.
Two basic parameters of the contracts signed yesterday - gas pricing and the formation of transit rates - correspond to the agreements between the heads of government that were reached at the negotiations between the prime ministers on the night from Saturday to Sunday. Since January 1, 2009, Naftogaz has been buying Russian gas according to the price formula adopted in Gazprom’s European contracts, but this year it will receive a 20% discount. The transit rate will remain at the level of last year - $1.7 per thousand cubic meters per 100 km. When Ms. Tymoshenko was asked about the average price for 2009, she asked to be given two days to calculate using a new formula for Ukraine. And she called the transit rate “profitable.” If we take the average European price from the 2009 budget approved by Gazprom ($280 per thousand cubic meters), then minus 20% Naftogaz will receive gas at $224 per thousand cubic meters. True, according to Vremya Novostey estimates, if the price of oil in Europe in the first half of 2009 fluctuates around $40-45, then in fact Naftogaz will pay on average about $280, and European prices on average by year they will be around $350 per thousand cubic meters. In any case, for the first two quarters the price for Ukraine is expected to be quite high - about $380 until April and about $300 for April-June. Ms. Tymoshenko promised that she would set average annual prices on the domestic market. This means that for the first six months Naftogaz will be obliged to subsidize supplies to the domestic market (and quite significantly). Especially if no special agreements were reached in Moscow yesterday to defer Ukrainian payments. Or providing a loan to Kyiv to service financial obligations to Gazprom.
The remaining details of the agreements were not disclosed by the negotiators. The volume of gas supplies to Ukraine, the settlement of Naftogaz's debt to RosUkrEnergo (over $600 million) and the fulfillment of the Swiss trader's contracts with European clients remained without official comment. At the same time, a source in Gazprom told the ITAR-TASS news agency that the share of Gazprom Sbyt Ukraine LLC in the Ukrainian market will increase from 7.5 billion cubic meters last year to 13.5 billion cubic meters this year. He also clarified that Naftogaz can obtain the right to export gas to Europe under RUE contracts (up to 5 billion cubic meters this year) if it is ready to buy from the trader at the market price the volumes of gas that are in Ukrainian underground storage facilities (11.5 billion cubic meters).
Although Yulia Tymoshenko, after signing the contracts, stated that Russia and Ukraine renounce all mutual claims made during the gas crisis, Gazprom head Alexey Miller told reporters late in the evening that together with Naftogaz they “continue to work together to study the legal consequences of the situation with the failure to transit Russian gas to European consumers through the territory of Ukraine in January of this year.” The company did not comment on what this means. And so it is clear that, first of all, the issue concerns possible financial claims from European consumers against Gazprom. The contracts are signed with a “supply or pay” obligation, and penalties can amount to the market value of undelivered gas (about 3.5 billion cubic meters in two weeks, worth $1.6 billion). Previously, the concern's top managers and Deputy Prime Minister Igor Sechin promised that all claims in court would be forwarded to Naftogaz and the government of Ukraine. Although it cannot be ruled out that it will be possible to reach a peaceful agreement with some clients by increasing gas supplies to them in subsequent periods.
The European Union thanks its partners - Norway, Libya and Algeria , “who provide the EU with a stable and increasing flow of gas during the crisis,” says the conclusion of the expert EU Coordination Group on Gas, which met yesterday in Brussels. According to experts, European countries can hold out without gas transit through Ukraine “for several more weeks and even possibly until the end of winter if the temperature does not drop.” As indicated in the statement, the situation remains tense, which is facilitated by the predicted decrease in air temperatures in Europe, so the European Commission “calls on Russia and Ukraine to resume gas transit as soon as possible.” The statement also emphasizes that measures to adapt the economy to crisis conditions required “significant additional costs.” “Measures for the redistribution of gas taken by EU companies and member states have allowed most countries to effectively cope with the situation and with minimal losses for consumers,” the statement emphasizes. “Bulgaria remains the most affected country, but measures have already been taken to transfer gas from Greece to this country.” ITAR-TASS
“E.ON Ruhrgas welcomes the final signing of the Russian-Ukrainian contract providing for the start of gas supplies,” a representative of the largest German gas company, Adrian Schaffranetz, told a Vremya Novostei correspondent yesterday. -- Even at the weekend, a positive signal from Moscow about the achievement of agreements between Prime Ministers Putin and Tymoshenko at the company's headquarters in Essen was perceived as a logical step in order to quickly resolve the current crisis." The German importer proceeds from the fact that deliveries can begin immediately. “It is also important at the present time to create, through the joint efforts of both parties, all the necessary technical prerequisites for the resumption and future uninterrupted flow of gas through Ukraine to Europe,” our interlocutor noted.
Mr. Schaffrantz estimates that once Russian gas supplies through Ukraine are finally restored, it will be approximately three more days before gas volumes are again available to the German importer at the Waidhaus compressor station on the Bavarian-Czech border. This is something everyone at E.ON Ruhrgas headquarters is looking forward to with particular tension. According to the German energy industry, if the blockade of Russian gas supplies had continued, German gas storage facilities would have been completely emptied by mid-February. The E.ON Ruhrgas concern continues to uninterruptedly supply fuel to its customers. To ensure the supply regime, all available opportunities for additional purchases and use of infrastructure are used. Moreover, in the near future, until the previous gas supplies through Ukraine are resumed, E.ON Ruhrgas will continue to supply gas to the countries of Central and Eastern Europe - Croatia, Bosnia and Herzegovina, Hungary, Serbia, as additional “supporting supplies”, Slovenia and Slovakia, supplies to which before the crisis were carried out in transit through the territory of Ukraine. Yuri Shpakov, Berlin