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Gazprom-Naftogaz transit
agreement conflicts with the South Stream and Nord Stream projects
The
transit contract between
Gazprom and Naftogaz is very
controversial and it makes the Russian-Ukrainian gas
relations less predictable. On one hand, Gazprom claims it needs to reduce the transit
flow via Ukraine for the reason of security of supply to Europe. On the
other hand, Gazprom promises to keep the transit volume at about 97% of the
average level of 2000-2007.
Article 3.1 of the
published version of the transit agreement between Gazprom and
Naftogaz for the period of 2009-2019 sets the minimum volume of gas
transit via Ukraine at 110 bcm/year (about 106 bcm/year excluding
transit to Moldova). According to Article 10.1, if the contract is
not fulfilled, the responsible party has to reimburse the losses of
the other party.
A simple math shows that
Gazprom is unable to fulfill the transit agreement and fill up all
bypassing pipelines at the same time. Table 1 gives the export flows
of Russian gas to Europe and Turkey under the maximum export plan of
Gazprom that was published in early October 2008, and under a more
realistic scenario that assumes exports of Russian gas flat at 195
bcm/year. The table considers the year 2019, when the Nord Stream
and South Stream pipelines are supposed to work at the capacity and
the transit contract with Naftogaz is still valid.
Table 1.
Exports of Russian Gas to Europe
and Turkey in 2019, bcm
|
|
Gazprom Plan |
Realistic Plan |
|
Destination of
exports |
A |
B |
A |
B |
|
Ukraine (1) |
106 |
84 |
106 |
54 |
|
Belarus |
12 |
34 |
12 |
34 |
|
Finland |
6 |
6 |
6 |
6 |
|
Blue Stream |
16 |
16 |
16 |
16 |
|
Nord Stream |
55 |
55 |
55 |
55 |
|
South Stream |
30 |
30 |
- |
30 |
|
Total
exports: |
225 |
225 |
195 |
195 |
|
Penalty for breaking the
contract, $ mill.: |
|
|
|
|
|
- at the transit tariff of
$2.04/mcm/100 km (2) |
- |
567 |
- |
1,326 |
|
- at the transit tariff of
$4.08/mcm/100 km |
- |
1,133 |
- |
2,651 |
A - Gazprom fulfills the
transit contract; B - Gazprom fills up all bypassing pipelines.
(1) Excluding transit to
Moldova.
(2) The base tariff of
the transit contract.
Note: The total
export capacity of Ukraine is about 143 bcm/year. In 2008, Europe and Turkey
received 117 bcm of Russian gas via Ukraine.
Under its best case scenario,
Gazprom needs to reduce the export and transit via Belarus
and Poland (mainly, the Yamal-Europe pipeline) to about a third of capacity. Otherwise, Gazprom has to pay about $600 million a year of
penalties for breaking the transit contract with Naftogaz (at the
minimum transit tariff).
Under a more realistic scenario,
Gazprom needs to reduce the flow via Belarus and Poland and to cut off
either the South Stream pipeline or the second line of the Nord Stream
project. Otherwise, Gazprom has to pay at least $1.3 bn/year of penalties for
breaking the transit contract. Note that the transit tariff is unlikely to
stay at the low level of $2.04/mcm/100 km, so the actual penalties can be 2-3 times higher
(in constant dollars). The realistic scenario may look optimistic later this
year. Lower exports to Europe would mean higher penalties under the
Gazprom-Naftogaz transit contract.
The conflict indicates that
Gazprom either does not plan to build the South Stream pipeline or plans to
break up the transit agreement before the construction starts. There are
many ways of breaking up the transit contract. One of them involves taking
the Ukrainian transit pipelines under the control of Gazprom.
Note that Gazprom and Naftogaz
were given just one night to prepare the two (11-year and
multi-billion-dollar) contracts. Gazprom officials may
have not noticed the conflict that night.
Mikhail
Korchemkin
January 27, 2009
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