Will EU abandon gas transit through Ukraine?

Will EU abandon gas transit through Ukraine?

The European Union (EU) is ready to abandon the natural gas transit through Ukraine, AFP reports.

The reason is the fact that Ukraine does not ensure the unconditional implementation of the energy regulations of the EU including a ban on combining the functions of gas transportation and gas supplies in one company.

According to AFP, there is a real clan war in Ukraine for the 'Ukrtransgaz' company, operating the half of total volume of Russian gas supplied to Europe. The US has warned Kiev that the policy of the Ukrainian authorities in the gas industry challenges not only the prospects of allocating $300 million from European Bank for Reconstruction and Development (EBRD) for further gas purchases, but the plans of Ukraine to apply for EU membership by 2020 as well, abc.az reports.

The Secretariat of the EU Energy Community also tipped off that ignoring the EU rules may challenge the role of Ukraine as a transit country.

A senior analyst of 'Uralsib Capital', Alexei Kokin, speaking to Vestnik Kavkaza, stressed that despite the fact that Ukraine does not fall under the jurisdiction of the European Union, since it is not part of it, it will be easier for Kiev to comply with the EU requirements and maintain their transit, than to argue and take risks. "Ukraine will have to establish a company-owner and a company-operator of the pipeline. It is much easier for both Kiev and Brussels than to build any new pipelines.

Therefore, I think that at the moment it is not possible for Europe to do without the Ukrainian," he believes.

At the same time, the EU itself can with time can give up the Ukrainian gas supply for other reasons, for example, the lack of investment and insecurity. "This is a more pragmatic approach, coupled with how good or bad the Ukrainian transit is working. And Europe does not have that many options: we have the Nord Stream and the South project, which is called the Turkish stream in the current configuration. The second line of the Nord Stream is already under construction, as well as works on the southern route. They will be able to replace supplies of Russian gas via Ukraine," Alexei Kokin said.

The deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, in turn, noted that it is unprofitable for Europe to abandon the Ukrainian transit, because there is no cheaper route for Russian gas supplies now. "Despite the politicization of the gas theme in the EU, the companies, which purchase gas directly, are focused on economic performance. In terms of the economy, there is no alternative to the Ukrainian transit here, although there are still problems of energy security," he admitted.

"The expansion of the Nord Stream capacity is economically justified: the North Stream-2, which is actively pushed by Gazprom, will deliver to West-Central Europe - Germany, France, Benelux, perhaps, the UK and the Czech Republic, in addition, Austria, Hungary and Slovakia are under question. If we are talking about gas supply to Eastern and South-Eastern Europe – Poland, Italy and the Balkans, the Nord stream-2 is less economically attractive here in comparison with the transit through Ukraine. Gazprom has no plans to abandon the Ukrainian route completely, because if the Turkish stream is not built, the transit to the Balkans and Turkey will continue," the expert said.

"Ukraine fears the implementation of the Nord Stream-2 the most, because Germany is interested in this pipeline, and Ukraine has no significant capacity to stop the project. Germany considers it a priority in terms of creating a key gas distribution hub in Germany. Ukraine's main risk is that in the case of significant decrease in volume of transit, there are very big technological risks for the gas transit system: the Ukrainian gas transportation system has no purely transit pipelines, therefore, it is impossible to bring any pipe out of service, without creating an alternative gas supply infrastructure to domestic consumers. This is a very large amount of money, which Ukraine does not have and, obviously, will not have in the near future," Alexey Belogoriev concluded.