Gazprom is setting up an experiment in Ukraine

Written by The Frontier Post

Alexander Sobko

The volume of Gazprom’s supplies to the EU has been one of the hot topics for discussion in recent weeks. Critics try to see this as a political component. To which the Russian gas monopoly directly indicates that the priority is to fill its own underground gas storages (UGS), where reserves have fallen dramatically over the past season. And no one can find fault with this explanation, since Gazprom’s production volume is indeed at its maximum levels for this season and is close to a record one. That is, one cannot accuse the Russian company of “holding back” production. You just need to do it yourself.
Earlier it was reported that the filling of Russian UGS facilities would be completed by November 1, later it became known that this would require one m-ore week. One way or ano-ther, after November 8 it will be interesting to obser-ve what will happen with supplies to foreign markets. Unless, of course, we have significantly colder.
Now Gazprom manages to completely cover the demand under contracts. Surprisingly, this is possible even when shipments through Ukraine are at record lows. The launch of the continuation of the Turkish Stream at full capacity across Europe and the EU’s policy of reducing the volume of long-term contracts are helping.
Let’s remind that forty billion cubic meters of transit obligations (“pump or pay”) across Ukraine correspond to 109.5 million cubic meters per day. This is exactly how much Gazprom transported back in September, but already in October the volume of deliveries fell to 85-86 million per day. In recalculation – only 31 billion cubic meters per year.
Gazprom pumps less than the guaranteed volumes, but, of course, pays for the transportation of all forty billion. This is not prohibited by the contract; in terms of money, the Ukrainian side remains with its own. But here the most interesting subject for observation is to what values ??the Ukrainian transit can fall while maintaining the normal functioning of the Ukrainian GTS.
Indeed, for many years one of the main arguments of the Ukrainian side in favor of the need to transport large volumes of gas was this one: volumes are needed to maintain pressure, and so on. It is clear that Kiev is interested, under any pretext, to ensure the maximum volume of pumping. It is impossible for outside observers, especially non-technical specialists in the field of gas transportation systems, to assess what the really necessary minimum is.
But now we see that a little over thirty billion is a perfectly acceptable option. Recall that the Ukrainian GTS simultaneously pumps gas of its own production, which is about twenty billion cubic meters per year.
It should also be recalled here that the Ukrainian GTS has two transit directions (although there are no separate gas pipelines allocated for transit) – west and south. After the launch of the Turkish Stream, transit in the southern direction was completely stopped. This is confirmed by the data of the “Ukrainian GTS Operator”: at the exit point at the Orlovka gas metering station on the border with Romania, there are zero volumes.
It is important here that the termination of transit, and, therefore, a multiple decrease in the volume of pumping along the southern branch did not lead to problems for the internal gas supply to the southern regions of Ukraine.
Of course, in any case, maintaining the performance of the entire system with a smaller volume increases the cost per cubic meter. And therefore, the Ukrainian side, in general, rightly stated and continues to declare that the tariff should depend on volumes. But now we are not talking about economics, but about technical capabilities. So far, as we can see, there is no problem here – neither in the south, where there is no transit at all, nor in the west, where it is now equivalent to thirty billion cubic meters per year.
At the same time, we have not yet heard of steps to optimize the operation of the GTS as part of the dismantling of redundant gas pipelines (after all, in each powerful corridor, as a rule, several parallel pipes are laid), which in the future will also reduce the technically required minimum volume of transit.
Next to the issue of volumes and routes is the asp-ect of the so-called reverse deliveries. Let’s try to systematize the reverse options.
First, it is the physical reverse of gas from Europe, which has probably never really been used in practice.
Secondly, this is the option that was predominantly used in the main (western) corridor, on the Ukrainian-Slovak border. When the gas formally crosses the border and immediately comes back.
Thirdly, the so-called virtual reverse, when physically gas is taken from the east of Ukraine. Critics be-lieve that the virtual reverse was used behind the scenes in the “official” second option. But whether it is true or not, it does not matter – after all, all this is in the past. If initially the use of virtual reverse was prohibited, then in recent years the Ukrainian side has managed to officially secure it in all export directions.
True, for this scheme to function, it is necessary that the importer on the other si-de of the border actually b-uy gas. Recently, the routes of Russian gas supplies to Hungary have been chan-ged. Now the country recei-ves the bulk of Russian gas not through Ukraine, but through the overland continuation of the Turkish Stream. Accordingly, both the Hungarian and Romanian directions for supplies to Ukraine within the framework of the virtual reverse become closed. But in any case, the Polish and, most importantly, the Slovak direction remains.
As for the physical reverse, they are practically not used, with the exception of PR purchases of gas in the form of LNG. In the summer of 2020, a Ukrainian trader allegedly tested on symbolic volumes of LNG supplies along the Greece – Romania – Ukraine route. But with the launch of both branches of the Turkish Stream, more and more of the gas in the region will be physically of Russian origin.
On the evening of October 29, it became known that Gazprom and Molodovagaz had extended the gas supply contract for five years. Details are not yet known, but the supply routes are likely to remain the same. During the bargaining on a new contract, which has been going on in recent weeks, some observers have suggested that the option of supplying Russian gas to Moldova by reverse of the Trans-Balkan gas pipeline from Romania is being considered.
Here, of course, questions immediately arise. Firstly, in any case, the entry point from Romania is located on the territory of Ukraine, although there is only about twenty kilometers to the border with Moldova. Further, the gas pipeline runs alternately through the territory of Ukraine and Moldova.
Secondly, it is unclear whether the Moldovan gas transmission network would be able to reconfigure the flows. From the Ukrainian side, gas enters Moldova through several points; the Ukrainian GTS operator does not detail the volumes for each of them.
Thirdly, in the case of such a reverse supply of Moldova, Transnistria is not along the route of gas flows, but, on the contrary, on the outskirts, which creates additional risks.
Let’s summarize. Small volumes of pumping in the Ukrainian direction are now of interest primarily in the context of the technical functioning of the Ukrainian GTS. At the same time, one should not expect a decrease in the volume of reverse gas supplies to Ukraine against this background. Since the prices on the Ukrainian market are European, traders do not care where to sell gas (except for some frosty force majeure, when “every man for himself”).
As for physical reverse, the transition of all market participants to exchange pricing when buying on the spot market makes complex logistics delivery schemes from an economic point of view meaningless, and in some cases even unprofitable. But the variety of physical delivery routes for importers may be relevant due to security of supply. On the other hand, it is also important for gas exporters to guarantee the delivery of the contracted volumes to buyers. Therefore, the specifics of pricing in long-term contracts may reflect, in particular, gas delivery routes.

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