The Ukrainian gas pipeline system was always a subject of big political debates. While lots of articles were written about the past and the future of the gas transit through Ukraine, the technical aspects of the pipeline operations were barely mentioned.
Even if the gas transit might decrease because of additional new pipelines around Ukraine (North Stream 2, Turkstream), transporting Russian gas to Europe and within Ukraine will continue and the current pipeline system needs a major upgrade to increase its reliability and efficiency. For such refurbishment, Ukraine needs additional funding, as this cannot be financed out of the ongoing pipeline operations and financial reserves do not exist. A search for an international partner, who could provide capital, has been unsuccessful so far, while some Western companies showed interest to be involved in this business.
Looking back to the history of gas transit, the Soviet Union has been delivering gas to Western Europe since the early 1970s, using German technology for the compressor stations. Already between 1968 and 1975 agreements with Austria, France, Italy and Western Germany were concluded. In the beginning of the 1980s, the Soviets started the construction of a new export gas pipeline through the territory of Ukraine and signed new gas delivery contracts over a 25-year period with their Western customers.
After gaining its independence 10 years later, Ukraine inherited a huge, aging gas transportation system with a dense network of almost 40.000 kilometers of primary and secondary pipelines, coupled with major storage facilities. This pipeline network is considered the biggest in the world and can transport up to 80 billion cubic meters (bcm) gas per year for Ukraine’s domestic gas consumption, and can also transmit a maximum of 140 bcm/year of gas entering from Russia and Belarus to European countries. The current usage in 2017 was at around 93 bcm – that represents 40 percent of the total supply for Europe – and Ukraine received for that a transport fee of around 3 billion Euro.
Nowadays the situation is politically complicated but also technically problematic – as the Ukrainian pipeline system could be more reliable and use much less energy. Currently, up to 6 bcm of “technical” gas is used for the operation of the pipeline. With more modern equipment this could be significantly reduced. After 15 years of discussions between Ukraine, Germany and the European Union the CEO of Naftogaz, Andriy Kobolev, announced in February 2018 the start of a pilot modernization project: A German-led consortium started to upgrade the compressor station Bar in Vinnytsia Oblast, using new technology, delivered by the U.S. energy giant General Electric.
This pilot project is a very encouraging and positive first step towards the overall refurbishment and is partly financed by a German loan. Facing the new pipeline architecture in Europe the further usage of the Ukrainian pipelines is crucial, and the overall discussion can gain a very positive momentum if Ukraine involves Western companies also in the operation of their gas pipeline system.
This can lead to many positive effects:
– NaftoGaz or their subsidiary UkrTransGaz could have a European (and maybe additionally also American) partner, who becomes a significant shareholder and ensures, that all decisions are aligned between the parties. This partner can also facilitate political and economic discussions between Ukraine, Russia, the European Union and the United States.
– The further usage of the pipeline system for international gas transit purposes will also help, that the military conflict in the Donbass region does not move westwards. This risk is certainly there if the usage of the Ukrainian pipelines would be completely discontinued.
– The partnership between Ukraine and a western company can bring urgently needed additional funds (e. g. from EBRD) to the poor country that can be used to modernize the pipeline system, to ensure domestic and international gas deliveries and to give and secure the workplaces for thousands of people in the Ukrainian energy sector.
– Ukraine can use the income from the joint operation to improve the safety and security of the gas transportation system by better monitoring security incidents and upgrading the cyber defense capabilities.
– The western partner can have an excellent income for his company share out of the gas transportation and storage, and can also ensure, that the modernization projects run smoothly and involve leading-edge technologies.
Overall the move from the currently fully state-owned gas transportation system to a joint venture with western partners will improve the energy security situation for Europe and Ukraine. In this way the Ukrainian infrastructure can be modernized by additional foreign funds and the gas sector can become a transparent part of the energy business like in many other countries. Such a cooperation will have only advantages for all involved parties and should start as soon as possible!
Cornelius Granig is the president of the European Ukrainian Energy Council. He has been, living many years in Ukraine and was the CEO of Siemens. Granig is a member of the advisory board of KyivPost. The European Ukrainian Energy Council (www.euec.eu) is an Austrian based think tank, supporting the modernization of the Ukrainian gas transportation system and the technical upgrade of the energy sector, to better react to cyber threats. He is also a member of the Kyiv Post advisory board. He can be reached at [email protected].
