Europe Ignites Ukraine Gas Import Deal

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - A major change to Russia's gas monopoly in Europe is underway as the European Union (E.U.) is poised to make a historic deal that will reduce the Ukraine's reliance on Russian gas and bring the country closer to Europe.

The Union has brokered a deal that will see gas flows reversed through Slovakian pipelines into the Ukraine, reducing the country's reliance on Russian gas imports and paving the way to the Ukraine becoming a closer economic partner for Europe. It should also help ease the volatile gas relationship ship between the Ukraine and Russian state-owned OAO Gazprom (PINK:OGZPY) (Moscow, Russia), where previous disputes have resulted in crippling gas shortages throughout Europe. In the past, Gazprom has cut off supplies to the Ukraine over unpaid bills, which led to drastic gas shortages throughout Europe in 2006 and 2009. Gazprom supplies a quarter of all the gas in the E.U..

Asked about the impending closure of the deal, Ukraine's Fuel and Energy Minister Eduard Stavytsky told Euractiv: "Yes, no doubt." A European Commission spokeswoman added: "We consider that we are very close to a deal. The content of the deal has been agreed, whereby the gas will flow from West to East through Slovakia to Ukraine. It's just a matter of signing, which should be in the next few days."

The reverse-flow deal would allow gas -- which originally came from Gazprom -- to be transported back to the Ukraine by physical reverse flow through existing unused pipelines. The gas would be up to $30 per 1,000 cubic metres cheaper than the $400 per 1,000 cubic metre rate Gazprom charges the Ukraine. It relies on Russia for 60% of its gas with the rest produced domestically.

The Ukraine has been re-importing some cheaper gas from Germany and Hungary through Polish pipelines since late 2012. There are plans to add a small additional pipeline in 2014. The country wants to boost its current reverse gas imports from the E.U. from 2 billion cubic metres (bcm) to 5-7 billion cubic metres in the short term and up to 15bcm in the future.

Europe wants the Ukraine to become a gas hub rather than a transit state and wants the country to become a greater economic partner. Russia, however, wants the Ukraine to join its Custom's' Union that also includes Belarus and Kazakhstan. The outcome of this bitter tug-of-war should become clear in the coming weeks.

Last month, the European Commission alleged that Gazprom was abusing its dominant position in central and eastern Europe, and could face billions of euro in fines. European Union (E.U.) Competition Commissioner, Joaquin Almunia, revealed that a charge sheet, or 'statement of objections' is being prepared and it is believed that Gazprom could be facing charges related to price fixing and restricting trade by the end of the year. For additional information, see August 21, 2013, article - E.U. Readies Charges Against Russia's Gazprom.

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