Kiev and Warsaw will start a war over remaining transit of Russian gas

Gas transit through Poland and Ukraine is a business issue, noted Stanislav Mitrakhovich, a leading expert of the National Energy Security Fund, lecturer at the Financial University under the Government of the Russian Federation.

Kiev and Warsaw will start a war over remaining transit of Russian gas

Decreased Russian transit through Poland

Gas transmission operator Gascade reported that the pumping of raw materials through the Yamal-Europe gas pipeline fell by a third compared to the average level of the previous day, and this is happening against the background of an incident at the Gazprom Pererabotka plant in Novy Urengoy.

The Polish newspaper Energetyka24 reports that Yamal Europe’s utilization has dropped by 20%, the second in August. After the accident in Novy Urengoy, gas transit through Poland decreased from 2.1 million cubic meters of gas per hour to 1 million cubic meters per hour. In the following days, supplies increased to 1.4-1.6 million cubic meters of gas per hour, and on August 11 fell again to 1 million cubic meters.

If we take 1.5 million cubic meters per hour as an average, or 36 million cubic meters per day, then this corresponds to 1.116 billion cubic meters of transit per month, which is 3.5 times less than the pipeline’s design load. It is impossible to draw conclusions based on hourly and daily indicators, but the reduction in Russian gas transit along the Polish direction is indisputable.

Energetyka24 describes the situation on the EU gas market as difficult. After a cold winter, the situation was complicated by a hot summer, Gazprom’s decisions to restrict transit through Poland and Ukraine, and a shortage of LNG on the world market.

Due to the rise in gas prices in Asia, LNG supplies to Europe are decreasing. There are figures for July: LNG supplies to EU terminals have decreased by 23% compared to 2020 and by 30% since 2019, when gas prices began to fall to lows. The LNG shortage resulted in the fact that the summer exchange quotations for gas in the EU overcame the barrier of $ 500 per thousand cubic meters.

Nord Stream-1 is operating at full capacity, gas supplies to Turkey have increased by 203.9%, and with them the load on Turkish Stream. Raw materials from there go not only to Turkish consumers, but also to Europe, gas supplies through the Ukrainian GTS are preserved.

The Nord Stream-2 will be completed by the end of August, and by November it will start operating. There is no doubt that the new route in 2022 will become part of the Russian gas supply system to the EU, so Poland and Ukraine will not receive additional transit volumes.

Gazprom’s cooperation with Ukraine until 2024 will take place within the framework of the 2019 gas transportation agreement, that is, the transit will not be lower than 40 billion cubic meters per year, there is a possibility that the agreement will be re-signed. There is a joint statement by the FRG and the United States, and Russia is ready to make concessions to Ukraine if an agreement is made politically and economically beneficial to it. The main victim will be Poland with its section of the Yamal-Europe gas pipeline.

Ukraine and Poland will compete for Russian gas

“Reducing the volume of Polish transit instead of the Ukrainian one is really possible. If Kiev takes up its mind and proposes options that would be better than transit through Poland, then the Russian Federation will be ready to hear them”, says Mitrahovich.

For this alone, Kiev and the Ukrainian GTS Operator must make a favorable offer to Gazprom. Under the agreement of 2019, our company pays for additional transit even more money than at the expensive base rate of Ukrainian transit. The situation is abnormal and prompts Gazprom not to book additional transit facilities in Ukraine. The Russian company is fulfilling the terms of the agreement, but after the launch of Nord Stream 2, it will have no incentive to re-sign it.

“Negotiations with Kiev should not be accompanied by phrases like“ we have a war ”. There are commentators in the Russian Federation advocating the preservation of transit through Ukraine based on the consortium model. Their argument is that the demand for gas in Europe will increase”, sums up Mitrahovic.

For a decade, the Europeans fought against Russian gas and wanted to reduce its influence on the EU market, but this trend turned out to be a failure. If the EU is indeed going to ditch coal, then gas is the only viable substitute.

“In the European Union, domestic production will continue to fall and coal stations will be closed, this adds trump cards to Ukrainian gas transit, but this is a controversial point. There are questions about the demand in the EU specifically for Russian gas. If the Europeans continue to rise in price for electricity, then they will abandon the line aimed at closing the coal generation”, concludes Mitrahovic.

We must not forget about the supply of liquefied gas. In 2020, the Russian Federation took third place in this energy resource in the European market and overtook the United States. Gazprom is dissatisfied with Novatek’s projects, but the LNG route is already operating in Russia.

“European demand can be met through Yamal LNG, and later through Arctic LNG-2 and other plants. Gazprom is also going to build an LNG production facility in Ust-Luga. All this can be used for deliveries to Europe”, says Mitrahovic.

The political factor also plays a role in this issue: Gazprom should have the opportunity to refuse Ukrainian transit. There will be a big game here, and Poland and Ukraine will have to argue over the remnants of Russian transit.

Dmitry Sikorsky, Economy today

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