Turning the tide - Ukraine and gas

Well there has been much written, including by myself, over the Ukrainian situation with Russian gas, the pressure the 2009 gas deal puts on the Ukrainian budget and the amount of time before Ukraine can take upstream projects and turn them into downstream production to alleviate this problem.

It is not often I write about rumour, however what I write next comes from a usually very good source and thus I will tell you anyway as it is likely to be more than a rumour coming from him.

Many have questioned what use the Ukrainian Gas Transport System will be to Ukraine if or when Russia builds Southstream and no longer needs to use the Ukrainian GTS.  With no gas and transit fees for Russian gas making its way to Europe and insufficient Ukrainian produced gas for quite a few years to come, what use will it be.

The answer it appears is to turn the tide.  More precisely the answer is to turn the direction in which gas is pumped in one particular part of the system.

The rumour is that Naftogaz Ukraine is going to sign a short term deal with RWE (I used to work for them - RWE Nukem to be exact) and buy gas at spot market prices from the EU and push it back from the EU system via the Slovakian system into Ukraine.

Spot market prices for gas are certainly far lower than the current rate Ukraine pays to Russia under the 2009 gas agreement.

Very good - but the rumour does not end there.

As we all know Odessa is to have a LNG terminal in the near future to help reduce the reliance on Russian gas.  That LNG most likely coming from Turkey which would make sense as it is less than a day sailing away.

In the meantime, it would appear that the Ukrainian government has been talking with Turkey and Bulgaria, Bulgaria having a newly refurbished LNG terminal and gas transportation system.  The plan is to buy LNG from Turkey, ship it to Bulgaria and then pump it into Ukraine.  Both Turkey and Bulgaria are currently happy to do so and assist a fellow BSEC nation.

So there you have it.  Parts of the Ukrainian GTS normally associated with gas flowing from Russia across the country out into Europe with now have the tide turned and gas from Europe (at vastly cheaper spot prices to the 2009 gas contractual prices) will be coming into Ukraine from Europe.

Quite how Russia will respond to Germany (via RWE) Slovakia, Bulgaria and Turkey all having a part to play in pumping cheaper gas into Ukraine than Russia does remains to be seen, but credit where credit is due to the current government for managing to pull this off if the rumour turns out to be true.

Oh the tides of fortune in the nefarious energy markets!

As long as Ukraine abides by the minimum contractual amount imported from Russia as per the 2009 agreement, the rest can be bought far cheaper through this arrangement given the current price of gas on the spot markets.