Wednesday

1st Jun 2016

Ukraine signs gas deal with Slovakia

  • Russia has almost doubled the price of gas in Ukraine (Photo: Naftogaz of Ukraine)

Slovakia is set to pump reserve natural gas to Ukraine in a reverse-flow deal signed on Monday (28 April).

The gas will run through the unused Vojany pipeline on the Slovakian side, managed by Slovak gas pipeline operator EUstream, to Uzhgorod in Ukraine.

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EUstream, along with its Ukraine counterpart Ukrtransgaz, aim to start pumping the gas sometime in autumn. The European Commission says it could amount to around 8 billion cubic metres (bcm) per year.

Despite around two years of negotiations, the move is in part framed by the escalating tensions between Russia and Ukraine.

Russia supplied 30 percent of gas to Europe last year, with a significant amount transited through Ukraine.

At the signing ceremony in the Slovak capital Bratislava, EU commission president Jose Barroso, described the deal as one that "contributes to greater energy security in Eastern Europe and the EU as a whole".

Around half of Ukraine's 50 bcm of gas consumed annually is sourced from Russia.

With Monday's agreement, Slovakia becomes the third and largest contributor of reverse-flow gas to Ukraine in the EU after Hungary and Poland.

"Gas via Slovakia will bring a considerable addition to the volumes that Ukraine can already import from Hungary and Poland," noted EU energy commissioner Gunther Oettinger.

Ukraine had stopped the Hungary and Poland imports after Russian state-controlled energy giant Gazprom slashed prices in December.

The cut was part of a larger $15 billion loan and a 33 percent discount on natural gas offered by Russia to Ukraine's Yanukovich-led government.

The discounted $270 per 1,000 cubic metres price has since almost doubled with flows now picking up again from Hungary and Poland.

Russia cancelled its 2010 Kharkov Agreement after it annexed Crimea.

The agreement had given Ukraine a gas rebate in exchange for hosting Russia's naval fleet in Sevastopol port. Moscow says the port is no longer a part of Ukraine.

Gazprom also issued an ultimatum for Kiev to pay $3.5 billion in unpaid bills by 7 May or risk getting cut off, sparking fears many in Ukraine may be without heating next winter.

Industry sources told Reuters last month that Ukraine has enough gas stored up to last at least four months should Gazprom stop the flows.

At 31 bcm, Ukraine has the largest gas storage capacity volume in Europe with most of the facilities found in the west of the country.

The EU is pushing to increase the volume of Slovak flows.

EUstream, for its part, has not completely ruled out upping the volume by using another larger transit gas pipeline but said it may run into legal problems.

The larger transit line carries Russian gas to the European Union and is partly managed by Gazprom Export.

The Slovak company, which describes itself as the largest single carrier of Russian gas in the European Union, said it would first have to reach an agreement with its Russian counterpart.

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