Business Gas connection to Ukraine could benefit Czech companies, relieve tensions

02-09-2014 15:35 | Chris Johnstone

Commercial reverse flows of natural gas from Slovakia to Ukraine were officially launched on September 2 with Slovak prime minister Robert Fico and his Kiev counterpart, Arsenij Jaceňuk in attendance at the border site.

Klaus-Dieter Borchardt, Arsenij Jaceňuk, Robert Fico, photo: CTKKlaus-Dieter Borchardt, Arsenij Jaceňuk, Robert Fico, photo: CTK The official launch of the interconnection amounts to a partial fulfillment of Ukraine’s hopes of diversifying its gas supply routes so that it will be less dependent on direct exports from Russia and the risk that they could be cut during the never ending disputes between the countries about gas bills and prices.

Broader gas supply options for Ukraine should allow it to buy cheaper gas than currently charged by Russia’s Gazprom. Ironically, some of the supplies could be Russian gas shipped back eastwards by West European gas companies.

Tuesday’s development could have important, but so far not totally transparent, implications for the Czech Republic. On the macro-economic and political level, diversifying Ukraine gas supplies and diminishing dependence on Russia could remove one of the sources of dispute between Moscow and Kiev and the risks of a wider energy crisis hitting the rest of Europe, as last occurred in 2009 when Russian supplies were turned off.

Talks between European Commission officials and Russian representatives are due to take place Thursday in a bid to defuse an ongoing gas price crisis centred on Ukraine. Rusian supplies to Ukraine are currently cut but they are continuing to Western Europe.

Czech prime minister Bohuslav Sobotka had offered to help relieve a possible energy crisis in Slovakia and Hungary with reverse supplies of gas shipped through the Czech Republic if the 2009 cut in supplies is repeated during the current Ukraine-Russia conflict and simmering bilateral gas disputes.

At the corporate level, reverse flows have been highlighted as another source of possible income for Slovak gas pipeline company Eustream, which is now managed a 49 percent by Czech energy company EPH, and further down the pipeline for its Czech pipeline owning and gas transmission counterpart, NET4GAS.

Eustream though had been reluctant to launch the reverse flows to Ukraine, partly because of fears that it would conflict with its long-term gas supply deal with Gazprom. How far Western gas suppliers would be keen to sell gas to Ukraine, whose gas bill paying discipline has not the best based on the Russian experience. Pressure from the European Commission in Brussels contributed considerably to the final memorandum on Slovak-Ukraine gas flows sealed in April, a move which the energy commissioner described as a ‘milestone.’

And those reservations were reflected in the final shape of the deal between Eustream and Ukraine’s gas transport company Ukrtransgas. Instead of the main gas pipeline running through Slovakia, and the Czech Republic, being used for the reverse flows, a smaller link across the border has been selected for the supplies instead.

When up and fully running the latest link could supply Ukraine with around 20 percent of its natural gas needs. Prime Minister Fico said Tuesday that, together with other links from Hungary and Poland, it could eventually meet around half of Ukraine’s total gas needs.

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