Gazprom to reduce delivery capacity to Ukraine

Russian state-controlled Gazprom plans to reduce its capacity to deliver gas into Ukraine by the time its 2009-19 transit and supply contracts with Ukraine state-controlled Naftogaz expire.

"By 2020 the transit capacities left in the direction of Ukraine will be 10bn-15bn m³/yr," Gazprom's chief executive Alexei Miller said in St Petersburg today.

Liquidating 4,300km of pipelines and closing 62 compressor stations would reduce the cost of the central corridor, Miller said.

Gazprom could have less need for delivering gas into Ukraine from 2020 with its supply and transit contracts with Naftogaz expiring at the end of 2019.

Gazprom has previously said it planned to cut Ukrainian transit to zero once its 2009-19 contract expires. But Russia's president Vladimir Putin had given an order to discuss extending the transit contract, Miller said last year . Ukrainian transit to Europe was 67.1bn m³ in 2015.

And Naftogaz has reduced its imports from Russia amid a continuing dispute with Gazprom. Naftogaz bought 6.1bn m³ from Gazprom in 2015.

Gazprom would need to bring the 55bn m³/yr Nord Stream 2 line on stream in 2019 to be able to substantially reduce Ukrainian transit by 2020 and continue to meet its European contractual obligations.

Nord Stream 2 would be cheaper than continuing Ukrainian transit, Gazprom said at this week's St Petersburg Economic Forum. Deliveries through Nord Stream 2 would be around 20pc cheaper than current Ukrainian transit, the company said. Ukrainian transit costs are set to rise as the country needs to invest in upgrading its system because it is older and requires more maintenance spending than the newer Nord Stream pipelines, Miller said.

Ukraine has increased transit fees this year , with Gazprom considering arbitration over the higher tariffs. Naftogaz has said that the tariffs were increased to cover the cost of amortising the network before the start of Nord Stream 2.

Using Nord Stream 2 could also reduce the cost of shipping gas in Russia, Gazprom said. Russia is producing more in the Yamal Peninsula, while output from Nadym-Pur-Taz is in decline.

This has resulted in Gazprom shifting its interest in flows through the north of the country — and into Nord Stream — rather than through central Russia and into Ukraine.

Gazprom would need six times the amount of gas for the Ukrainian network and Russian feeder pipelines than it would for the northern route, Miller said.

The Russian firm would earn $45bn-78bn more shipping through Nord Stream 2 over 25 years than via Ukraine, Miller said.

Around two-thirds of the gas shipped through Nord Stream 2 is earmarked to supply central and eastern Europe, although some of that would go on to Italy via Austria. Nord Stream 2 delivering to central Europe and Italy would allow Gazprom to bypass Ukraine, but it would need a substantial expansion of the network in the region.

German system operator's Gascade's proposed Eugal pipeline would have capacity to deliver 51bn m³/yr to the Czech Republic and 11bn m³/yr to Poland and connect to Nord Stream 2.

While Gazprom could use all of Nord Stream 2, it may not be allowed to use any of the capacity on onshore continuations such as Eugal. The firm would need comply with the EU's third energy package , unless it receives a third-party access (TPA) exemption.

The European Commission, which has said it will be strict with Nord Stream 2, would have to approve any TPA exemption.

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