Ukraine says opposition to Nord Stream 2 is growing

Naftogaz CEO Andriy Kobolev [European Commission]

On a visit to Brussels, Andriy Kobolev, the CEO of Ukraine’s state oil and gas company Naftogaz, met with EU officials and talked to the press, focusing mainly on the Gazprom-sponsored Nord Stream 2 gas pipeline project, designed to bypass Ukraine.

Kobolev met with the teams of Vice-President for Energy Union Maroš Šef?ovi?, and Energy Commissioner Miguel Arias Cañete, on Monday (18 January).

He told journalists that his country had filed a complaint against Nord Stream 2 with the Secretariat of the Energy Community, the EU body responsible for relations with the Union’s neighbours, before the close of 2015.

Nord Stream 2 consists of commissioning and building a set of gas pipelines under the Baltic Sea to transport an additional 55 billion cubic metres of gas per year (bcm/y) from Russia to Germany. The project is 50% owned by Russia’s gas export monopoly Gazprom, and by BASF, E.On, Engie, OMV and Shell in 10% portions.

Naftogaz contends that the project are in breach of EU legislation under the Third Energy Package, and moreover do not respect the Commission’s requirement to ensure increased competition in the EU gas market.

Additionally, Naftogaz believes that bypassing Ukraine makes no economic sense, considering the low prices for transmission services and the “high level of reliability and safety of the Ukrainian gas system”.

The European Commission is in the process of preparing a response to seven ministers from EU countries, who filed a similar complaint.

>>Read: Sefcovic: The Commission will respond to Nord Stream’s critics

Kobolev said he could not disclose the content of his talks with the Commission, because they were confidential, but added:

“We believe positions toward Nord Stream have changed dramatically in the last couple of months, in favour of our position.”

He argued that the project was hardly economically viable, and that its main aim was to economically weaken Ukraine.

“If you look at numbers, if you look at costs, and if you look at the final result and the capacities you get, any person who understands numbers would know that this project is very far from any economically feasible,” the Naftogaz CEO said.

“When you see something is not feasible, but somebody is strongly insisting that it should be implemented, we start believing there are other reasons.”

He repeated that he believed that “more and more people start understanding this”.

“For Gazprom it is a matter of winning the war in Ukraine. Russia knows they cannot win militarily, so for them the best way is to damage the Ukrainian economy,” Kobolev said.

Ukraine, it is believed, stands to lose up to €2 billion if it forfeits the transit taxes of Russian gas to Europe across its territory.

Asked by EURACTIV why such well-respected European companies are on board with a project he describes as economically unviable, Kobolev said that Gazprom was “well known for convincing their partners”.

“Shareholders structure is one thing, and capital structure a different thing,” he explained, saying that shareholders could be taken on board “even for one dollar”.

Kobolev said Ukraine believes Gazprom tells its Western partners: “Guys, we will build everything at our expense, just allow us to create this additional route. We will bear all costs.”

He further explained that Gazprom was prepared to give shares to more European companies, even up to 75%, to make look the project European, although it would not be, because at the end of the day, there is only Russian gas at the end of the pipe.

Kobolev argued that at some point Gazprom would try to extract the profit it lost. For that, they would need the Ukrainian system to stop being economically feasible, and be shut down. Then, the EU will be left with Nord Stream 1 and 2 routes bringing Russian gas to Europe.

The Naftogaz CEO argued that Eastern European countries and Southern European countries would become very vulnerable to any interruptions and bottlenecks from gas being carried via Nord Stream, and that the EU would need to create new gas infrastructure in that part of the continent.

Naftogaz plans

Asked about his company’s plans to reform and become compliant with EU energy legislation, Kobolev spoke of major plans in the short and medium term.

Regarding unbundling, as required by the EU, he said that Ukraine plans to separate gas transmission assets in 2016, and split underground storage and pipeline operations as separate businesses.

Regarding local production, he said the country’s potential was huge. The state-owned firm UGV, responsible for local production, should be privatised as soon as possible, possibly in the beginning of 2017, when tariffs in Ukraine will be brought to market level, he said. He added that he hoped for “a big name”, or a consortium of big names, to come and buy UGV.

Gazprom probe

Asked if he thought the Commission’s antitrust probe on Gazprom probe could change its way of doing business, Kobolev said “Yes, if it’s done properly.”

He added that everywhere in Eastern Europe, it was obvious that Gazprom was first building itself a dominant and monopolistic position, and then abusing this position.

The Nafogaz CEO explained that Gazprom did not reduce its prices to Ukraine, because this would immediately become public and backfire on countries in Central and Eastern Europe who would want similar discounts. This is why Russia prefers not to sell gas to Ukraine, and for Ukraine to buy its gas from Europe through reverse flows, he said.

According to Kobolev, in the current situation, a possible fine of €5 billion would cause huge damage to Gazprom, and to its public image. That’s why he said it should be expected that Gazprom would rather negotiate with the EU, and lift objections to full capacities of reverse flows from Slovakia to Ukraine.

Currently, Gazprom has booked capacity, East to West, of the interconnectors with Slovakia, which Ukraine uses to pump gas from EU countries. A possible compromise could increase Ukraine’s capacity to import from the West from 14.5 bcm/y to 24 bcm.

Asked about the South Stream project, which is now called “Bulgarian Stream” by the Bulgarian premier, he said that the project would not fly, because Sofia wants a gas hub, and Gazprom is totally opposed to the idea that their gas should compete with other supplies.

>>Read: ‘South Stream’ to become ‘Bulgarian Stream’

Kobolev said that in his opinion, the country which is the most likely to become a future gas hub, in the longer term, was Turkey. 

Nord Stream was inaugurated on 8 November 2011, in the presence of then-President Dimitry Medvedev, and Chancellor Angela Merkel.

>>Read: Russian, EU leaders inaugurate Nord Stream pipeline

Led by Gazprom, which has put the cost of the plan at up to €9.9 billion and maybe less due to savings, the group is to build a third and fourth pipeline to transport up to 55 billion additional cubic meters of gas a year (bcm/y).

It would double the capacity of lines 1 and 2, which take the same route. The new pipelines are due to start transporting gas by the end of 2019.

Gazprom, E.ON, BASF/Wintershall, OMV, ENGIE and Royal Dutch Shell formed the consortium for the Nord Stream-2 project. 

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