[Premium] Ukraine to Earn $3bn from Russian Transit
Ukrainian state-owned producer Naftogaz is on track to earn "close to $3bn" in 2017 from gas transit from Russia to Europe, CEO Andriy Kobolev told journalists in Brussels November 27.
Gazprom has been exporting a lot of gas to Europe this year, with demand up for power generation and industry too as the price has been lower. In the first five months of this year, NGW calculated, it was due to pay Ukraine some $1.24bn for transit to date, or $3bn for 12 months. Since August however Gazprom has been able to use more of the capacity in Nord Stream.
Naftogaz plans to keep transit tariffs high, even increasing them until 2020, he said, after which point they will be dramatically lowered, as Naftogaz already announced in May this year. The reasoning behind this appears to be that, since the current transit contracts between Russia and Ukraine expire in 2019, Naftogaz wishes to both finish paying up for existing infrastructure through transit revenue, and offer a commercially attractive transit route 2020 onwards. The pipes are already many decades old, being built long before the break up of the Soviet Union, and several billion dollars need to be spent on upgrading them, according to external consultants.
Kobolev claims that tariffs could go down to a tenth of their current levels, at which point Ukraine would be a much cheaper transit route than the Nord Stream 2 pipeline project. Ukraine’s transmission system, he adds, “can be used to transport up to 140bn m³/year and cost half as much as Nord Stream 2.”
Naftogaz sees another promising project in offered gas storage capacities in Ukraine to European firms, especially after the Ukrainian regulator adopted earlier this year new legislation that allows gas traders to access VAT-free temporary storage for up to 1095 days (3 years).
Additionally, the company hopes to produce 20bn m³/year by 2020, including production from shale gas deposits being developed by Naftogaz in co-operation with foreign contractors, although that has been jeopardised following a recent domestic ruling on November 28 when it lost some licences, according to declarations by Naftogaz.
As NGW reported in June, Naftogaz is still in the process of unbundling its gas transmission system, and although the procedure to select a Western partner to participate in the process is still under discussion, Naftogaz said four western companies have expressed their interest, and that each is reliable.
Naftogaz is hopeful that this will send a signal to other Western partners to invest in the country. This process is dependent on the Stockholm arbitration ruling on the transit dispute with Gazprom and this has been delayed until February 2018. Gazprom is able to stop the assignment of the contract to a third party.