Ukraine lies to Germany about its mistake on Nord Stream 2

Ukraine has lied to Germany about its mistake about Nord Stream 2. If this Russian pipeline is put into operation, gas prices will go up, the head of the Ukrainian pipe operator, Serhiy Makohon, frightened Germany – and even provided arguments to support such a conclusion. Where does this logic come from, and what is its weakness?

Ukraine lies to Germany about its mistake on Nord Stream 2

Putting Nord Stream 2 into operation will lead to an increase in gas prices in Germany. This unusual statement was made in an interview with the German publication Die Welt by Sergei Makogon, head of the company GTS Operator Ukraine, which manages the Ukrainian pipe, DW reported.

He assures that Germany is allegedly mistaken, that it should understand that Russia will not deliver additional volumes of gas through Nord Stream 2 as was once planned, that once Nord Stream 2 is operational, the Ukrainian pipe will no longer be used.

“Gazprom will control all access and then prices will go up, including in Germany”, –  warns the Ukrainian representative. As proof, he cites the drop in pumping volumes through Ukraine in January. According to him, Ukrainian pipelines are only 20% occupied: Russia has paid for transit of 110 million cubic meters per day, but pumps only 50 million. “It makes no sense, when the volumes of gas production in Russia have increased, and the demand for gas in Europe is very high,” Makogon says indignantly.

However, the logic of the Ukrainian pipe manager is bursting at the seams, Makohon juggles the facts in such a way as to show Gazprom in a black light.

First of all, initially there was no talk about new volumes of gas to be delivered to Europe via Nord Stream-2; no new contracts for supply of new volumes were signed, Igor Yushkov, an expert of the Financial University under the Government of the Russian Federation and the National Energy Security Fund, reminds. On the contrary, this gas pipeline, together with Turkish Stream (and before that the South Stream project), was built from the very beginning to take over the gas volumes that are transited through Ukraine. Gazprom’s aim was to exclude an intermediary (Ukraine) between the seller (Gazprom) and the buyer (the Europeans). No one was hiding it, and all the European partners who supported the project and gave Gazprom loans were well aware of it. Therefore Makogon’s statement that Germany allegedly had no idea and was mistaken about it does not stand up to criticism.

Secondly, Makogon is worrying about Germany for nothing. Germany itself and other European contractual buyers of Gazprom’s gas don’t care at all which route the Russian fuel travels, Yushkov said. It makes no economic difference to them: both price and supply volumes depend on contractual terms, not the delivery route. Only within the framework of the EU environmental agenda, it would be more logical for Brussels to choose not the Ukrainian route, but Nord Stream 2. Because this pipe has a shorter distance through Russian territory, is more technologically advanced, uses less fuel to pump gas and, accordingly, emits fewer greenhouse gases than the morally and technically obsolete Soviet pipeline on Ukrainian territory.

The supply route is important for Gazprom. “Nord Stream 2 is much more economically viable than the Ukrainian pipeline. It is a shorter and faster route, and the transportation fee goes to Gazprom itself, as the owner of the pipe, rather than to a third-party Ukrainian company. “For the first time, Gazprom will have the opportunity to choose the route of gas supply, and Ukraine will cease to be a non-alternative supplier,” Yushkov said.

For Ukraine, of course, the situation is also changing. Although Ukraine will continue to receive transit money from Gazprom until 2024, even if there is no physical transit of Russian gas and the entire volume from the Ukrainian route goes to Nord Stream-2. On the other hand, this creates problems for the supply of gas to Ukrainian consumers themselves.

“Ukraine takes some gas from the transit pipe in the east of the country and immediately directs it to its own consumption. And similar amounts of gas are added to the pipe in the west of the country where there is domestic gas production and underground gas storage facilities. As much goes into the Ukrainian pipe, so much must come out. Without physical transit of Russian gas, Kiev would have to rebuild the country’s entire gas system. So that the gas extracted in the West and purchased in Europe could be pumped in the other direction – from the West to the East”, – the expert said.

The third manipulation by the Ukrainian official: the launch of “Nord Stream – 2” will not lead to an increase in gas prices, although Makogon tries to convince Germany to the contrary.

 

A third manipulation of the facts by a Ukrainian official: the commissioning of Nord Stream 2 will in no way lead to an increase in gas prices, although Makogon tries to convince Germany otherwise.

However, we have already found out above that fundamentally the change of the route has no effect on supply volumes, and prices in Gazprom’s contracts mainly depend on prices on spot exchanges, not on the route.

In theory, the launch of Nord Stream 2 should not lower gas prices, i.e. it should not in principle affect them in any way. However, the energy crisis in Europe and politicisation of the Russian gas pipeline (it has become an object of confrontation between the West and Russia) made Nord Stream 2 a potential way out of the crisis.

“Theoretically, if one imagines that Nord Stream 2 suddenly starts up now, it would already lead to a decline in gas futures and gas prices on the European spot market at the news level. Because exchange traders are also politicised, they think that Gazprom will not deliver more gas through Ukraine, but it will through Nord Stream 2. Plus they hope that by launching the pipe, Gazprom will be able to sell more through the electronic trading platform, thus increasing supply volumes. In other words, the launch of Nord Stream 2 may cause a psychological reassurance reaction in Europe, although fundamentally it will not change anything on the market,” Igor Yushkov explains.

However, Makogon forgets that it is not Gazprom that decides how much gas to supply to Europe, but the Europeans themselves. “Judging by Gazprom’s data, in January the volume of pumping decreased not only through the Ukrainian route, as the Ukrainian GTS Operator complains, but also through the Yamal-Europe pipeline to Poland, and even through Nord Stream 1. Most likely, the Europeans have reduced the current import of gas, as it is expensive, and prefer to pump more gas from underground storage facilities, where it was pumped earlier at a lower price,” the interlocutor explains. The problem is that Europe’s underground storage facilities are depleting too quickly this season. Therefore, according to Yushkov, already in February the Europeans’ ability to pump gas from underground storage facilities will decrease significantly, they will have to increase gas imports again, and then the data on gas pumping from Russia will increase for all pipelines.

If Nord Stream 2 were launched now, Gazprom would at least be able to send additional gas through it to pump into its own European storage facilities. This would also reassure exchanges and European buyers, as it would provide a safety net for February and March. However, due to bureaucratic procedures, the Russian pipeline will not receive operating certificates until the summer, but rather closer to the autumn of 2022.

Olga Samofalova, VZGLYAD