Ukraine signs gas memorandum with Slovakia, prepares to sue Gazprom

Eustream and Ukrtransgaz, Slovak and Ukrainian natural gas transportation operators, signed a memorandum of understanding on possible ways to transport gas to Ukraine, the Slovak company reported on April 28. The document was signed in the presence of EU Commission President José Manuel Barroso and EU Energy Commissioner Günther Oettinger, the company reported. “We promised to do our best, within the technical and legal limits, to provide (to Ukraine) 8 to 9 bcm of natural gas per year”, Eustream CEO Tomáš Mareček reported.

According to information provided by Ukrtransgaz on April 28, supplies of natural gas from Slovakia will arrive in early September, with a daily flow of 22 mcm (annualized flow 8 bcm) through the  Vojany-Uzhgorod pipeline. This pipeline is considered a “small reverse route”, according to Ukrtransgaz. Supplies of gas in this route do not demand additional deals with Russian Gazprom-Export, according to the Ukrainian side.

A “big reverse route” includes supplies through the DUG-2 pipeline, which is currently working to pump natural gas to the EU but has been recently under-utilized, according to a press release by Naftogaz (NAFTO), the owner of Ukrtransgaz. Technically, this larger option can make it possible to supply up to 30 bcm of natural gas from Slovakia, according to Ukrtransgaz. Though, this option is only possible with the involvement of Russian Gazprom-Export, Ukrtransgaz clarifies. Notably, a “big reverse route” was only mentioned by the Ukrainian side, as an option that “should be kept open” in the memorandum.

Meanwhile, Energy ministers of Russia, Ukraine and the EU may convene negotiations on gas issues on May 2 in Warsaw  (to discuss Ukraine’s payments for Russian gas and, possibly, gas pricing and opportunities of reverse supplies of gas from Slovakia), Interfax reported citing the Russian Energy Ministry

In the other news, Ukraine’s PM Arseniy Yatsenyuk confirmed on April 28 the government’s intention to repay Naftogaz’ USD 2.2 bln debt to Gazprom for natural gas supplied until April 2014 as soon as Gazprom agrees on the price for Ukraine of USD 268.5/tcm. He also reported that government and Naftogaz initiated an arbitration case against Gazprom and have already sent it a “pre-arbitration note”. The note demands clear answers on pricing (Ukraine demands that gas price should remain USD 268.5/tcm) and opportunities to revise the gas contract (singed in 2009) within next 30 days, Interfax-Ukrayina cited Yatsenyk.

Alexander Paraschiy: So far, the opportunities of the “bigger route” are not a part of the signed memorandum, as we understand yesterday’s messages. A possible gas import from the west to Ukraine will not exceed 6-7 bcm this year (including routes from Poland, Hungary and Slovakia), while it needs to import about 20-22 bcm of gas during May-December 2014. Therefore, Ukraine will have no other option but to import some 13-16 bcm of natural gas from Russia by the end of 2014. Pricing of Russian natural gas remains the key unknown for Ukraine – we see that the USD 268.5/tcm price is not possible for Ukraine, while we continue to believe that there is some chance on a “compromise pricing” of USD 385.5/tcm for the nearest quarters.