Gazprom pipelines and export capacity

Газопроводы Газпрома и экспортные мощности

Gas pipelines of West Siberia

Газопроводы Западной Сибири

Export flows of Gazprom

Экспортные потоки

Spot, Gazprom, Brent

Цены на нефть и газ

End-use price of gas

Russia and USA

Daily gas production

Суточная добыча


Russian-Ukrainian Gas Dispute


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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Last modified: 12/07/14                    East European Gas Analysis 2006-2014                                           Email: info@eegas.com
Reproduction or use of materials is allowed only with reference to East European Gas Analysis or www.eegas.com