Tuesday, 30 December 2014

Another Pyrrhic victory for EU: forcing Russia to abandon the South Stream project.
Can empty gas pipes become a reality for Europe? Why?


It is known that a Pyrrhic victory achieved at too high a price is tantamount to defeat.
This old saying is fully consistent with the events taking place now in the European energy market. Unfortunately, persistent political confrontation between the EU and Russia strongly encouraged from another side of the Atlantic, has overwhelmed Europe's traditional abilities of prudently aiming for our own economic benefit, which is being more often replaced by unassured expectations of the fulfilment of predictions and promises.

Now you can hear and read a lot of enthusiastic reports that Europe had demonstrated firm principles insisting that the pipeline "South Stream" should meet the requirements of the Third Energy Package that made Russia retreat from its plans. Although our media tries to ignore the fact that, first of all, it was Brussels and Washington victory over Bulgaria, which was forced not to give a bureaucratic permission for the construction of the pipeline "South Stream".



The biting irony of the situation in Bulgaria is that this country known as one of the most economically underdeveloped countries of the EU already has got a list of such "victories" over projects. Despite the fact that Bulgaria needs much more than many other members of the EU to develop its energy industry this country experienced freezing such energy megaprojects as the Burgas–Alexandroupoli oil pipeline for transportation of Russian and Caspian oil from the Bulgarian Black Sea port of Burgas to the Greek Aegean port of Alexandroupoli and a nuclear power plant "Belene". It happened again when gas pipeline "South Stream" was being added to this list.

However not only Bulgaria but also other countries of the EU would have to pay a high price for this "victory". Before that other South-Eastern European countries as well as Bulgaria actively prepared for the possibility to pour into their economy a powerful flow of Russian gas. But now they are expecting real actions of Brussels to implement the European Energy Security Strategy released as far back as in May.
Just a week after an unexpected statement of the Russian President Vladimir Putin on termination of the project "South Stream" the European Commission held an emergency meeting of energy ministers of the EU countries, where it was announced that allegedly there are alternatives to Russian gas. These alternatives have been published on December 9 in the joint statement of the European Commission and the EU member states whose interests are affected to varying degrees by cancellation of the project "South Stream".

Ultimately such a statement is important for the European Commission in order to demonstrate an outward unity. As to the EU countries participating in the meeting this statement was aimed at somehow diverting public attention from the problems around the project "South Stream" and also showing for their citizens that they would be willing to seek a replacement of the former energy development plans. Together with other countries Romania hastened to join to the statement in order not to miss an expectable funding from Brussels on this occasion, although this country long ago had refused to participate in the project "South Stream". At the same time Hungary that was always in the first row of the project supporters, declined to sign the statement obviously realizing a hypocritical nature of the situation.

In fact what the European Commission proposes now as alternatives to mitigate and in some countries even as means of outliving the "victory" over the project "South Stream" raises a lot of doubts both experts and anyone else who is familiar in general with present realities of the energy market.

The proposals of the European Commission put forward for compensation of abandoned gas deliveries by "South Stream" previously scheduled to begin in the fall of 2015 are especially unrealistic regarding the use of oil and gas resources of the Black Sea and the Eastern Mediterranean. The development of these gas resources was mentioned only once in the European Energy Security Strategy in the context of projects of the distant future to be realized after 2020. Moreover, there is no any data yet properly proving a commercial value of potential gas resources of the Black Sea. A verification of hypotheses about the presence of substantial volumes of gas on the Black see shelf would require many years of costly works.

As to the use of gas resources of the Eastern Mediterranean it could be a realistic scenario if we take into account the natural gas reserves in the Israeli shelf, where two new large gas fields were discovered in 2009-2010. It is the Tamar gas field with reserves of 274 bcm and the Leviathan gas field located 130 km off the Mediterranean port of Haifa, which has estimated gas reserves of 481 bcm considered now as one of the largest newly discovered gas fields in the world. However, Israel is planning to deliver gas from these fields not towards Europe but in the opposite direction. Israel has already signed preliminary agreements with Egypt and Jordan that envisage exporting gas to the amount of up to 70 billion USD within the next 15 years.

It is impossible to estimate a complete potential of the sea shelf gas reserves near Cyprus because they have not been properly explored yet. But this task encounters a very difficult political obstacle - even for exploratory drilling first of all it is necessary to conduct a territorial delimitating of the sea shelf of Cyprus and to define the rights to use the natural resources of the island. This problem has not been solved for forty years since when Cyprus was divided into three parts: Greek, Turkish and another part under control of British military forces.

Besides that, it is necessary to take into consideration separately that transport and logistics infrastructure for gas deliveries to Europe from the Eastern Mediterranean would cost dozens billion Euros. Neither Cyprus nor Greece has got such financial capabilities. Ultimately, it would take many years to extract and bring this Mediterranean energy to Europe.

As you can see, the gas supplies from the Black Sea region and the Eastern Mediterranean should be attributed to the very distant future. The question is when will it happen? But it is even more difficult question: up to what extend could these opportunities be really implemented?

The second alternative proposed by the European Commission for compensating shortages of energy because of the cancellation of the project "South Stream" concerns future development of LNG terminal network. The necessity of LNG terminals is being discussed permanently and, of course, public attention to this topic is quite justified. Nevertheless, if we imagine that such a modern network of LNG terminals would be created, the question immediately arises: where to get gas volumes necessary for its effective usage.
In my post on October 23 I already wrote that the European LNG market is losing out to its competitors who more actively attract suppliers of LNG to Japan, China and other Asian countries. It is still unknown when the US will start delivering to us a long-promised shale LNG.

Consequently, there is a high probability that the planned terminal network in significant extent will accommodate LNG from Russia. It is noteworthy that there is an idea to build a gas hub together with LNG terminal at the end of a new pipeline "Turkish Stream" near the Greek-Turkish border for distribution of Russian LNG further along the Mediterranean.

By the way, LNG from Russia may appear in the Mediterranean even before completing the construction of the gas pipeline "Turkish Stream". For example, recently Russia has negotiated possible supplies of LNG to Bahrain in Persian Gulf. Therefore, it will come as no surprise for you to learn in future that instead of Russian gas failed to be transported by the pipeline "South Stream" Europe would buy Russian LNG.

As saying, what we had gone from, then to the same we will return! However, in fact it will be a return with the transition to a significantly higher price level taking into account LNG production and transportation costs.

One more, the third alternative of replacement of undelivered Russian gas proposed by the European Commission is to be well-known to us. This is the "Southern Gas Corridor" consisting of the pipeline TANAP from Azerbaijan via Turkey and the pipeline TAP through several countries alongside the coast of Adriatic Sea. Now there is a supplementary idea of creating a so-called "vertical corridor", which will consist of cross-border gas pipelines linking GTS in Romania, Bulgaria and Greece that will allow these countries in the future to connect with the TANAP pipeline and, it is not improbable - to the pipeline "Turkish stream" as well.

An encouraging information about the project TANAP is that after its completion scheduled for 2018 Europe will receive 10 bcm of gas per year from Shah Deniz gas field in Azerbaijan.
However, an important question arises that its capacity is insufficient since Azerbaijani gas would be enough only to compensate for less than sixth of volume of undelivered gas by the pipeline "South Stream" with an annual capacity of 63 bcm.

Meanwhile the statements about possible doubling of "Southern Gas Corridor" capacity up to 20 bcm a year do not stand up to scrutiny, as all the arguments break against boundaries of the existing resource portfolio. It is obvious that a significant increase in volumes of gas deliveries without an adequate increase in resource portfolio would result in deteriorating the security of gas supplies. Therefore, the latter is hardly possible in case of using only Shah Deniz field.

There is no reasonable answer where the pipeline TANAP can get gas in addition to supplies from Azerbaijan. Availability of additional gas supplies from Turkmenistan and Iran remains in the row of unrealistic ideas. Now deliveries from Turkmenistan are mostly aimed at the Chinese market providing more than 88% of pipeline gas to this country. It is unlikely that Turkmenistan is sufficiently interested in the construction of the Trans-Caspian offshore pipeline in the direction of Azerbaijan, which requires very large investments. It is equally important that such an offshore pipeline under the Caspian Sea must get certain environmental and other permits from all Caspian states including Russia. As to Iranian gas, you will remember that it would require settling a whole complex of problems in relations with this country.

As a result, we can see that all the alternative proposals of the European Commission actually do not bring nearer, but on the contrary postpone a stable growth of gas supplies to Europe. This is especially true of South-East part of the continent.

Why does it happen that the struggle for European energy security sometimes looks like as the struggle against this security, when our policy makers are trying to convince us that less gas supplies to Europe in the longer term would be better (!?), than much larger gas supplies, which could start as early as next year?

Wednesday, 10 December 2014

Why should Bulgaria pay an exorbitant price for European solidarity?

After Vladimir Putin had said that Russia would abandon South Stream Pipeline, the headlines have appeared in news media: "The South Stream is breaking against the wall of European solidarity". However, this is obviously the point of view of those European countries that were not directly related neither to the construction, nor even to a future gas consumption to be delivered by the "South Stream". There should be entirely different public opinion in Austria, Serbia, Hungary, Bulgaria and other countries - in fact, public expectations of economic growth and dreams of a better and stable life in general crashed against this wall. Meanwhile in return these countries have received only compliments from Brussels and Washington.

Bulgaria happened to be the number one loser, although as in sign of encouragement this country has been promised speeding up the process of accession to the Schengen area. Visa abolition by the EU can really become for somebody an emergency exit for avoiding future problems. After all, in any case it would facilitate a relocation from the warm countries of South-Eastern Europe where gas usage is extremely low, to the North Europe with high per capita energy consumption.



About three months ago in the blog post on September 1, I already wrote about the "Bulgarian bastion", at that time expressing the hope that it will be a temporary obstacle on the way of real strengthening the European energy security. Unfortunately, the "Bulgarian bastion" was turned into the wall of European solidarity. Now Bulgaria is nailed to this wall by the entire power of transatlantic allies' influence. It is resulted in that one of the European countries much more than most of others requiring an economic assistance was deprived not only of new revenues but also in the long term of those revenues, which now Bulgaria is permanently earning from gas transit.

Brussels has always shunned issues related to economic losses of Bulgaria in case of cancellation of the South Stream project, replacing the assessment of such a pessimistic scenario with the stress tests campaign in case of emergency caused by interruption of Ukrainian transit this winter. Most probably, they should be nervous because the calculation of missed benefits and other losses resulting from failure of the South Stream project logically would lead to a discussion of the need to compensate for the economic losses of Bulgaria, which sacrificed their sovereign rights to make decisions in national energy industry.

As Vladimir Putin pointed out at the press conference in Turkey: “If Bulgaria is deprived of the opportunity to act as a sovereign nation, then they should at least demand money from the European Commission to compensate for their lost profits, because direct revenues to Bulgaria's budget alone would have been no less than 400 million euros a year”.
In addition, the South Stream project would bring over 5 billion euros of investments in Bulgaria, which would provide over 6 thousand of new jobs. Now at the beginning of the preparatory phase of construction 800 people were already employed on the offshore part of the project, 80% of them - Bulgarians.
It was expected that the project would ensure a significant increase in gasification of the residential sector in Bulgaria. In fact, now only 2-3 % of Bulgarian households are taking advantage of natural gas usage, this is compared to the average number in Europe, which stands at around 50%. This highlights an actual opportunity for growing in regards to energy efficiency as well.

Our mass media is widely disseminating an idea that the main reason for the cancellation of the South Stream project was not at all the EU-US policy aimed at building an opposition to the project and forcing Bulgaria to join it, but that because of steadily falling oil prices, this project has become prohibitively expensive for the Russian company "Gazprom". However, the argument allegedly concerning the high cost of the project completely collapses if we take into account that Botas Petroleum Pipeline Corporation signed in Ankara a Memorandum of Understanding on constructing an offshore gas pipeline across the Black Sea towards Turkey. The new gas pipeline will have the same capacity of 63 bcm, with 14 bcm scheduled for Turkish consumers. It is necessary to draw a special attention to the fact that now this volume is being delivered via the Balkan Corridor. Another part of nearly 50 bcm will be transported to the Greece–Turkey border, where a gas hub will be arranged.

It actually reveals that, firstly, in the future, Turkey will not need supplies of Russian gas via Bulgaria. Therefore, besides the above mentioned losses caused by termination of the South Stream project there will be the loss of existing transit payments in Bulgaria as soon as a new gas pipeline to Turkey is constructed. That is what is now Bulgaria annually receives about 60 million euros for the transit of 14 bcm.

Secondly, in future it will be unlikely possible for Bulgaria to purchase gas from Turkey at the same prices as it would be in the case of direct supplies from Russia.
Nevertheless, it is evident that Europe's efforts are contributing a great deal to the establishment of Turkey's position as a leading transiter of gas on the EU southern borders. How it can affect gas supplies to the EU, obviously, deserves a special consideration.

Ultimately Brussels will have to continue searching excuses and trying to shift off responsibility from themselves for consequences of the destruction of the gas infrastructure agreements.
The following quotation from the novel of famous English writer Elizabeth Bowen as an epigraph could set a non-biased coverage of these events of the EU gas market: “Sacrificers are not the ones to pity. The ones to pity are those they sacrifice”.

Why did it happen to Bulgaria? Why did a leading role of the victim of European solidarity fall to Bulgaria despite the fact that according to a survey of the Institute of Modern Politics carried out in this country in September 2014, South Stream project enjoyed the greatest level of public approval amongst all current energy projects, 51% survey respondents indicated that they supported the project?

Wednesday, 3 December 2014

Why does a "Golden age of gas" come to China, and maybe Turkey is already on the verge of it, while Europe could be prepared for an elusive "Age of Shale"?

China has long stopped surprising us with their high rates of economic growth and unique projects. Although there are more and more talks about slowing down the development of this country, new projects continue to be created that each time makes us move further away the limits of our imagination. For example, such a project is like the largest in the world fan-shaped solar-powered office building located in the Shandong Province in northwest China. This building set a new world record for the usable area covered by solar panels, a total area of which amounts for 75 thousand square meter.

Chinese natural gas market also deserves much of our attention, especially with regard to growing environmental requirements. Air quality problems give an impulse to the Chinese government to take tough measures for reducing environmental pollution. In this regard, the use of natural gas, especially as a replacement of coal, becomes one of the main directions for reducing emissions. It is stated in the 2014 Medium-Term Gas Market Report of the International Energy Agency (hereinafter - IEA) that the development of energy, industrial and transport sectors of the Chinese economy stimulates demand for gas which will increase over five years by 90% and in 2019 will amount to 315 bcm. The national gas resources will meet a half of the demand since projected natural gas production in China will grow by 65 per cent from 117 bcm in 2013 to 193 bcm in 2019.

In the meantime, it is expected that China will continue to act as a major importer in the world gas market.
Here it is very appropriate to repeat a summarizing conclusion of the IEA five-year forecast, published on 10 June of this year: " 'Golden Age' of gas coming to China".



In fact, it is unlikely possible for us to consider the EIA experts' conclusion as something extraordinary. That is rather a matter of the recognition of obvious facts.

A the same time there is another statement in this IEA market report which should be regarded already as a signal to Europe that expected changes in the global gas market will pose significant challenges for the European energy security. In particular, it is quoted as saying that "near-doubling of Chinese demand for gas by 2019 offsets slowdown in other regions (of the world – ed.)".
Let us to clarify that it will happen primarily because of the reduction in gas supplies to European market!

Consequently, gas intended now for "European" imports after a while will become gas for "Chinese" imports... In such a manner, probably, we shall be told soon about LNG redirected to Chine from Qatar, Peru, etc. What is more important, it can obviously concern the gas imports by pipelines from Russia!

Apparently, our policy makers in Brussels both in the former and in the new structure of the European Commission in addition to all the other duties indirectly are turning into reality the above-mentioned forecast of the Chinese gas market development.
In Europe, all of us know their statements about the aims of diversification of gas supplies to the EU and strengthening the security of gas supplies by means of reducing the share of Russia in the European gas market.

There is a famous old saying: "Be careful what you wish for, it might come true".
Have our policy makers in Brussels and other capitals really expected that their wishes would be executed by Russia to that extent? What kind of reaction from Russia did they expect to receive in response to the repeated statements of their intention of limiting the share of Russian gas imports and, particularly, in response to the decisions of the European Commission aimed at countering the construction of gas pipeline "South Stream"? Unfortunately, getting deeper and deeper into a gas confrontation with Russia, Europe mostly confine itself to vague generalities and assessments of the stress tests before the upcoming winter.

Our old and therefore wiser Europe, unfortunately, showed no foresight. After all, the majority in Europe hardly expected to obtain such an extensive and definite response of Russia.

At first, the Russian counter-response became the new Russian-Chinese gas agreement, which provides for supplies of gas to China via a so-called "Western route". It is especially important for Europe, that gas for Western route to China will be produced at the same gas deposits in Western Siberia, which are used to ensure supplies to our market.

Thus, while there is an political discussion in Brussels how to carry out a diversification of gas suppliers, Russia is already performing in practice a diversification of its export markets.
Although the tone of the EU policy makers began to soften and there have been recently some statements mentioning the gas pipeline "South Stream" as an important project for Europe.
However, it was too late and not enough - so now Russians shut down the project "South Stream" themselves!

Not for the first time, as they might say, unwittingly, Brussels and Washington efforts to restrain Russia in the energy market have played a catalytic role in its transition to a new, higher level of diversification of export markets for Russian gas.

New, but maturing for some time breakthrough in relations with Russia in gas sphere was achieved in the talks of President Vladimir Putin in Turkey where he stated that for Russia under the present conditions it is impossible to continue implementation of the "South Stream" project because of the non-constructive position of the European Union.

“If Europe does not want to carry out [South Stream], then it will not be carried out,” he said. “It would be ridiculous for us to invest hundreds of millions of dollars constructing a project, bringing it to Bulgaria’s borders and having to drop it from there on.”

In turn, as a result of these negotiations, Russian supplies would increase by 3 bcm through the pipeline "Blue Stream" and Turkey would receive a 6 per cent price cut on Russian gas from January 1. Ultimately, Turkey has taken an important step toward becoming the gas hub on the southern border of Europe. Moreover, this is a considerable contribution into the opening of the "golden age of gas" at the Anatolian peninsula.

Meanwhile current developments in the European gas policy reveal even for non-experts that further attempts of the dialogue with Russia from a position of monopoly buyer of its gas do not make sense.
It is obvious that packages of sanctions and other types of EU pressure on Russia have given unique results. Nevertheless, to our disappointment they are opposite to those on which many Europeans would like to count.

It raises disappointment of Bulgarians that their country lost a historical chance of being a big player at European energy market should not it?
It happened also much to the annoyance of other countries of South East and Central Europe, which in vain have been preparing for the implementation of the pipeline "South Stream" for a number of years.

Now Europe is suffering from a shortsighted policy in energy sphere and is looking constantly backwards on the transatlantic partners, who promise an elusive "Age of Shale" setting back hopes for a "Golden Age" at the European market of natural gas. The impression is as if somebody else decides for Europeans that there will be no new demand growth in gas in Europe, and that Europe should live out its remaining time only with thoughts about the Golden Past. Indeed, according to Eurostat in 2013 gas consumption in 28 EU member states decreased by 0.4% in comparison with 2012.

Why under these circumstances do the political ambitions of some of our state leaders not give way to economic feasibility, as well as to citizens' desire for stabilizing relations with Russia strained below any reasonable limits, especially in the gas sphere? 
Why would not do it, and thereby actually drive Europe's economy forward particularly in the less-developed European countries to the sustainable growth?

Friday, 28 November 2014

Why does Russia terminate construction of the pipeline "South Stream"?

This breaking news has appeared in the heart of Europe at a press conference in Stuttgart, where meetings of representatives of the German business community with the Minister of Economic Development of Russia Alexey Ulyukayev took place a few days ago.

Answering journalists' questions at a press conference Alexey Ulyukayev said that he admits the possibility of terminating construction of the pipeline "South Stream".

"South Stream — is a way to remove transit risks for the European consumers if the European consumers have a demand for decrease in risks, we will construct South Stream if this demand isn't present, we won't build it" — Alexay Ulyukaev declared.



Thus, Europe is offered to decide upon whether to assume or, on the contrary, thanks to the pipeline "South Stream", to absolve themselves of transit risks related to gas supplies of 63 bcm, taking into account that this volume of gas is about 75 percent of the gas transit carried out at the high risk via very unstable Ukraine.

Talking about the press conference in Stuttgart, it is possible to expect that upon the Russian initiative, but in this case not upon Brussels, there will be a need once again to count resources necessary for replacing the gas imports from Russia.

As it happened before, in addition to traditional gas supplies from Norway, Algeria and some others, obviously, future gas supplies from Azerbaijan, Israel, and even Iran would be included into the list of potential gas resources. It would seem that there are many of such promising projects, but unfortunately, it will take quite a long time to get gas from them. No doubt, these projects have a future, but they are able only partially compensate for the gas share of Russia, and that will have to wait for many years.

Specific features and expected results for Europe from implement of these Caspian as well as Mediterranean gas projects deserve special attention and it is worth to highlight them closely in future blog posts.

However, now it is important that news from Stuttgart would be heard by Europe and, in particular, would be clearly known in Bulgaria becoming the first European country that will host the pipeline "South Stream" on its way to the EU and participate in determining fates of the project. That is why our special attention is turned now to this Balkan country and to the newly elected government of Bulgaria, which today really creates the future of the European energy security.

Friday, 21 November 2014

Why do you still doubt that there is a connection between the paintings of old European artists and the Ukrainian underground gas storages?

Typical distinguishing features of classic winter landscape pictures by old European artists such as Hendrick Avercamp and Andreas Schelfhout are an icy expanse, frosty atmosphere and a lot of people on skates. It seems that all of that is far back in the past, and now our Europe is seriously concerned about global warming. Moreover, as if confirming this peculiarity of modern North Europe flocks of wild tropical parrots are flying everywhere in Belgium, the Netherlands, Germany and other countries for a whole year but no one is surprised with that any more. According to the ornithologists' research, the population of parrots only in Brussels consists of 5 to 6 thousand birds.

The irony of it is that in accordance with a study of Japanese researchers from the University of Tokyo published in Nature Geoscience just a global warming could cause severe winters in Europe and Asia. In fact melting of ice in the Arctic Ocean area since 2004 has made more than twice as likely atmospheric circulations that suck cold Arctic air to European continent.



However, as you might imagine, I am primarily interested in how such changes can affect a "circulation" of natural gas streams at global energy market necessary to compensate for cold winters.
Although most of us in Europe do not like it, so long as ice in Greenland and other parts of the Polar world is melting, there is a high probability that soon we will  get an opportunity to see winter landscapes of old European artists in reality.

Apparently, our politicians in Brussels have not disregarded such an unpleasant climate change as well. The European Commission took into account the influence of "cold winter" as one of key risk factors in conducting stress tests on the resilience of the European gas system Preparedness for a possible disruption of supplies from Russia during the fall and winter of 2014/2015.

The results of stress tests published on October 16 indicate that Europe may face harsh challenges. Especially it concerns energy weakest countries of South East Europe. In particular, these documents revealed what can happen in case of a 6-month disruption of gas supplies from Russia. According to ENTSOG modelling, gas shortage by February 2015 in five EC member countries of South East Europe, including Bulgaria, Croatia, Greece, Hungary and Romania in the worst scenario - especially in the coldest spell and in the absence of cooperation between these countries - will range from the highest in Bulgaria (66%) to the lowest in Croatia (12%).

Thus, in relative terms, there will be the most negative impact on Bulgaria, whose position in provision of gas will be more precarious.

Nevertheless, it is obvious that in the present situation with regard to gas supplies the cold winter predicted for Europe is not the only one and, what is more, a major risk factor. For those familiar with my previous posts it should not be a hard task to identify actually a major factor or source of risk to our energy well-being in the coming winter. Now we are talking about a neighboring country, which itself is already on verge of energy collapse, when the authorities are urging citizens to gather firewood and straw on the eve of winter. It happens, unfortunately, not in old artists' themes of paintings, but in real life of Ukraine, which, by the way, declared its desire to acquire associate membership in the EU!

While here in Europe despite of lack of time there are attempts to implement recommendations based on stress tests in order somehow to overcome the threat of gas hunger, early in November Ukrainian state company "Naftogaz" announced that a major supplier of gas to Ukraine would remain ... Europe?

So what should we do in Europe: either to supply gas to Ukraine protecting them against winter cold and their huge economic failures or to search for additional energy resources for themselves not to freeze up in this winter season?

In response, dear readers, I must say that in Ukraine let this gas be called European or anyhow else, even Chilean ... But everybody has to understand that there is no other gas instead of Russian gas on the Slovak-Ukrainian or on the Polish-Ukrainian border!

That is why, for example, Ukraine refuses to reveal the conditions of the contract concluded recently with Norwegian gas supplier Statoil, because otherwise they would have to admit that there is no technical possibility for supplying gas from Scandinavia to the Ukrainian border, and it would be much more expansive. Actually, this Ukrainian-Norwegian transaction, as all in other cases, envisages reversing the gas delivered from Russia.

Realizing this, we need to recognize that the most thorough stress test should be performed particularly in Ukraine, since this country is responsible for ensuring transit of about 50 per cent of total volume of EC gas imports from Russia.

Of course, everybody in Brussels should be aware of it and our respected policy makers had been negotiating for many months in a trilateral format, encouraging at least a temporary agreement between Ukraine, which did not pay the debt for gas, including delivered in November and December 2013 and Russia, which in response shut off gas in June this year.

After seven rounds of gas talks the EU, Russia and Ukraine finally signed an agreement on October 30, which regulates gas deliveries until March 2015. Meanwhile the signing of this so-called "winter package" of trilateral documents is unlikely can cover a looming energy gap in Ukraine in the coming winter. The country has no money for gas. But what is much worse that termination of coal supplies from Donbass significantly aggravates the current energy recession.

In such a critical situation instead of purchasing gas in Russia Kiev has actively started using gas from underground gas storages (UGS) to meet significantly growing internal demand. It is very important that UGS are primarily intended for providing peak volumes of transit to Europe. Therefore, their main goal is to ensure a prompt technical support in case of increase in gas demand in EC countries caused by fall of temperature in winter. This means that in fact Ukraine does not observe key conditions for reliable transit without which the gas agreements signed by Russia and Ukraine with the mediation of the European Commission will not guarantee us an adequate energy security in Europe.

As you can see on the threshold of the predicted harsh winter these Ukrainian underground storages have become a subject of special concern and attention for Europeans. It is hardly possible to imagine paintings illustrating how these UGS look like.

Deteriorating capacities of these UGS and a total connivance of Ukrainian authorities trying to solve their problems at the expense of Europe and at the expense of Russia can result in an unpleasant surprise for all of us in the coming winter when frost-bound landscapes of the old European artists after two hundred years will occur again in reality.

Would you like to speculate still further who and how much will feel cold this winter, why?

Sunday, 2 November 2014

Why should Slovakian Gas Transmission System Operator care so much about Ukraine?

Several days ago, Reuters quoted a statement made by the head of Slovakia's pipeline operator Eustream Tomas Marecek with regard to a construction of the South Stream Pipeline through the Black Sea. This statement attracted attention because for the first time one of the major managers of the Slovakia's business officially stressed his support for the Brussels policy blocking the implementation of this pipeline. As the main argument, Tomas Marecek indicated his concern for Ukraine and its ability for reaching, as they say, their "European choice". In particular, he said that approval of Russia's South Stream pipeline would send a message to Ukraine that the European Union is not ready to support its ambitions to lean toward the West and does not see it as a reliable gas transporter.

Obviously, Tomas Marecek have not read blogs like mine, where we are considering verifiable information about the problems of gas transit to Europe and are raising questions, most of which are often simply ignored in our countries. Alternatively, I would say that probably there is no need for him to be acquainted with this information if he is already aware of a real situation, but does not show it because of some specific reasons.



We have already clarified the circumstances influencing the reliability of Ukraine as a transit country. Usually a public opinion on such kind of reliability can depend on subjective assessments of experts and statements of politicians and businessmen. As to a public opinion on such kind of reliability usually it depends on subjective assessments of experts and statements of politicians and businessmen. And the Ukraine's actual ability of ensuring reliable gas transit from the Russian border to the EU borders are determined mainly by the existing level of management and technical condition of Ukraine's gas transportation system (GTS).

It is important pointed out that present management of Ukraine's GTS conducted by the state administration is now publicly characterized as much by unfair practices of agreements implementation  and manipulation of commitments already signed contracts. Present Kiev authorities adduce an illegal offtake from transit gas envisaged for Europe as allegedly one of possible ways in their public policy making. Only now, they just officially become calling it as "impossibility to guarantee a trouble-free transit."

The situation appears from bad to worse for the reliability of Ukraine as a transit country in terms of technical condition of its GTS. This system was built in the Soviet Union times and since then has already exhausted its resources and according to current standards requires a thorough renovation of the main equipment. But there is no finance for these purposes in the country under conditions of economic collapse as well as unjustified hopes for prompt foreign investments for the same reasons.
Therefore, the transit capacity of Ukraine's GTS has been objectively falling for long time. The nominal capacity of the Ukraine’s gas transportation system had been kept stable for a certain period after its commissioning in the last century and on the border with the EU countries it amounted to about 140 bcm per year. However, in 2007 through Ukrainian pipelines to Europe it was already transported only 115 bcm of Russian gas, and in 2012 the volume of gas transit through Ukrainian pipelines to Europe went down to 81 bcm of Russian gas.

It is important that, despite the downfall, consumers in our European countries have received gas from Russia in full due to the diversification of routes of Russian gas supplies particularly by means of putting into operation the Nord Stream gas pipeline.

Gas industry professionals in Slovakia, which is also a close neighbor and a partner of Ukraine, are most likely familiar with the given facts. Then what goals does the head of the Slovak pipeline operator Eustream pursue defending the role of Ukraine as a transit country for Russian gas to Europe?
There is an answer in the same statement of Tomas Marecek for Reuters, in which he emphasized that no objection to South Stream would be needed if the project represented an additional transit route that did not replace the Ukrainian system and was justified by demand for new gas in Europe.
This phrase openly indicates that the Slovakian pipeline operator really bothers not the situation in Ukraine, but a probability of cancelling Russian gas transit through Slovakia, or in other words, it is a reaction against an appearing threat of losing this lucrative business.

And here is a big deal to lose since the total volume of Russian gas transit through the territory of Slovakia amounts to 35 bcm a year as well as the contracts stipulating the terms of gas transit were signed in 2008 for a period of 20 years.

Moreover, as it is already mentioned in previous posts, a reverse gas from Slovakia in fact is Russian gas circulating around an annular pipeline system created at the Slovak-Ukrainian border. In this case, a reverse gas from the Slovak side is recycled back to the transit pipeline system directed to Slovakia and Ukraine siphons gas out the transit pipelines basing on mutual offset of liabilities at a distance of thousands of kilometers away from the border. As a matter of fact it is physically impossible to deliver gas from Europe to Ukraine, because all gas flows are streaming in West direction with the exception of the short cross-border gas pipeline Vojany-Uzhgorod near Veľké Kapušany in Slovakia specially constructed for reverse operations on which I wrote in September.
Executing such a "reverse carousel" is another profitable business project for Slovakia. Meanwhile Slovakia's main concern in this case is reliable payments especially taking into consideration that actually Ukraine is a bankrupt up to its neck in debt. That is why even before commencing the reverse project in September Slovakia had demanded financial guarantees from the European Commission confirming that its reverse gas deliveries to Ukraine would be paid properly.

The payment issue, obviously, still is a matter of concern for Slovakia. At the highest level Prime Minister Robert Fico reaffirmed Slovakia's opposition to chip in for the Ukrainian debts. And at the same time he pointed out that any financial assistance for Kiev with gas supplies should be performed only on a commercial basis.

That way, both Slovakia's government and its pipeline operator Eustream reasonably care about their economic and business interests. However, they are apparently well aware that this business indeed requires gas supplies from Russia, without which there would be neither transit to Europe nor reverse to Ukraine.

It would be extremely important that our Europe as a whole understands the same and especially countries importing Russian gas for their social and economic needs as well as other countries that are just getting ready for that debating the prospects and opportunities for South Stream gas pipeline.
The Slovak experience eventually reveals that such a reverse technology by means of a circular pumping of the same gas on the border and mutual offset of liabilities only creates an illusion of enhancing energy security if there are no stable supplies of gas to the European market.

Why not to cool down a real reverse euphoria that invaded in minds of our politicians dealing with the EU energy strategy? And why not to suggest them to stop so persistently reversing from our countries the existing streams of gas supplies as well as the international relations that have been developed step by step for a long time in previous decades to ensure gas supplies from Russia to our European market ?

Thursday, 23 October 2014

Why does Japanese contango warn us to be more skeptical about an expected growth of European LNG market?

It is expected that liquefied natural gas (LNG) supplies will grow as a major potential energy source taking on one of basic roles in diversification of gas supplies to the EU. Let me remind you that in response to the political crisis in Ukraine and the threat of destabilizing energy supplies to the EU in May the European Commission adopted the European Energy Security Strategy. There is a number of LNG projects in this important energy policy paper listed among key security of supply infrastructure projects to be implemented in period up to 2020.



According to this strategy it is planned to build the following LNG facilities: LNG vessel in Lithuania, LNG terminal in Swinoujscie in Poland, Baltic LNG terminal with location to be decided, LNG terminal in Krk island in Croatia as well as two terminals in Greece - in Alexandroupolis and LNG floating terminal at Bay of Kavala. Along with that, the construction of the LNG terminal in Klaipeda in Lithuania is nearing completion at the end of this year but this project was not included into the Strategy covering medium term prospects.

LNG development is definitely one of the most important achievements in energy industry in the XXI century, and assimilation of these technologies is very essential.

But at the same time there are important questions.

Firstly, what are the prospects of filling our European LNG market with this source of energy to ensure all these projects are put into full capacity with an expected profitability?

Secondly, diversification involves maintaining a stable mixture of energy resources, and in our case, it is LNG and pipeline gas. Then why is it better not to rearrange further the historically achieved EC gas balance with high volumes of pipeline gas including those coming from Russia? In other words, why not reconsider the radical attempts to find at the long run a complete replacement of Russian gas supplies by LNG?

However, opponents, especially our politicians, argue that "gas pipe binds us up with a sole supplier that causes a loss of energy independence", etc. But excuse me for such a trivial argument that any pipe has two ends and gas suppliers also remain dependent upon us that means - upon our European gas distribution markets. This is not to mention more about the technologies used in gas production, where sharp fluctuations in volumes of gas field output are contraindicated. Virtually, on the one hand, there is a mutual dependence of consumers and suppliers in case of a pipeline gas, and, on the other hand, it is also a matter of common interest. After all, figuratively speaking, nobody of them is able to turn an existing pipeline in other direction.

It's another matter how to redirect LNG carriers. By different reasons all over the world, sometimes circumstances of insuperable force can alter LNG routes significantly.
So it happened, when in Japan a nuclear disaster at the Fukushima I Nuclear Power Plant on 11 March 2011 resulted in a meltdown of three of the plant's six nuclear reactors. Eventually it led to the closure of all 54 nuclear reactors in this country and the transition towards more sustainable use of LNG energy resources. As a result LNG flows were largely redirected to Asia and the nuclear disaster in Japan gave an unprecedented boost to LNG prices growth to 55%, which, in turn, made the European LNG market much less attractive.

Now let me remind you, that we are talking about the plans for the development of the LNG infrastructure in the EU countries. But at the moment even before the implementation of these plans, according to experts, the existing infrastructure of our LNG market is utilized only by 20%. It occurred primarily due to a high demand, and thus more attractive prices at Asian LNG market.
And the situation is still non reassuring. Prices of spot LNG for November delivery to Asia increased 12.4% month over month to average $14.426 per MMBtu, according to the latest Platts Japan/Korea Marker for month-ahead delivery.

The general manager of the trading department of a leading Japanese company Marubeni has been recently quoted by Reuters as saying that the Japanese LNG market continues to stay in a contango condition when prices with delayed delivery of LNG are significantly higher than prices for these energy resources on terms of immediate delivery.

Thus, we see that the Japanese contango has a real impact on competition in the global LNG market and it is not for the benefit of European consumers. Moreover an upcoming winter season most probably only will strengthen this market trend.

Therefore, it is worth repeating in the address of our esteemed politicians who are dealing with the future energy balance of Europe, analysts' estimates published in «oilprice.com» September 29 that “currently there is not enough LNG on the global markets to replace Russian imports… Any attempt to fully replace Russian gas with LNG in the short-term would force a 127 percent hike in Europe’s natural gas prices”.

Thus, favorable conditions to develop European LNG market is restrained by price competition with Asian markets of these energy resources. Along with that, now there is a competition between a pipeline gas and LNG continuing at the global gas market, in which the first traditional gas resource is not going to give up its positions. In this regard, for example, according to the Gazprom CEO Alexey Miller, LNG share on the global gas market will not surpass the 30% mark.

As known, Gazprom continues extending the gas pipeline infrastructure, fulfilling the largest to date in the world gas pipeline projects South Stream and the Power of Siberia. Besides this Russian company is performing big plans for increasing its LNG capacities. There are the Vladivostok LNG and the Baltic LNG projects in Gazprom plans, as well as the project for expanding the existing LNG plant on Sakhalin. It is expected that once these projects are launched, Gazprom’s share in the global LNG market will rise from the current 5 to 15 per cent.

This means that the EU refusal of Russian pipeline gas imports in favor of increasing LNG supplies may turn round Europe again back to Russian LNG from the Baltic or the Arctic region, where the Yamal LNG is being built as well, or from the Far East.
In this case it appears that from what we in Europe are trying to get away, that's the same what we'll come back to again!
Then what for will be such "a run in circles"?
Here is again economic feasibility suffers that will affect adversely our out-of-pocket expenses.
Meanwhile we can see that both current and future changes in the Asian part of the world energy market insufficiently is taken into consideration in the European Energy Security Strategy.

Perhaps someone with a sense of humor would joke that Far East market is too far, so this Japanese contango is just out of view of our energy strategy makers.

But if we talk seriously, inevitably the question occurs why our economic well-being, including provision of comfortable temperature for essential living conditions, depends on the policy makers, whose personal experience often has never been directly linked to energy sector and who are offering strategic solutions based on myopic expectations leaving such factors as Japanese contango behind the horizon?

Sunday, 19 October 2014

Why MEPs are dissatisfied with the candidates for the new European Commission?
European Parliament conducted hearings of candidates for the new European Commission on October 6, and, according to many MEPs, this test was failed in some cases.

Of course, it is difficult to imagine in politics full or close to that consensus. And particularly, it concerns our MEPs corps, given a width of political views and different party platforms presented in European Parliament.

And yet, as if to justify, we could mention that selection process of candidates is influenced by the desire to observe some gender balance in the new composition of the European Commission.
But all these arguments are not enough, and the composition of a new team of European Commissioners, unfortunately, does not reassure us in their abilities to solve the complex problems that they have to meet in the near future.



Probably, those who listened attentively to the records of three-hour Internet TV broadcasting of Hearings for Commissioners designate on June 6, , just like to me, it seemed that Mrs. Alenka Bratusek's speech who is proposed to the position of Vice President for Energy Union, was particularly unconvincing.

One of the first questions to Mrs. Bratusek put by MEP Marek Grobarczyk from European Conservatives and Reformists Group was related to a widely known issue about where the European Union can obtain gas supplies in case of replacement of gas from Russia, if the Commission implements its intention to reduce EU dependence on Russian gas. To everybody's disappointment, the answer was very general, and too short especially with regard to possible changes in the geography of gas supplies. In answer, Mrs. Bratusek stated that, in the short term it was expected to replace Russian gas with the supplies "from Norway and from the side of Mediterranean Sea."
Such an answer, obviously, was one of the reasons for the disappointment in the audience comprised of rather informed MEPs who even urged several times Mrs. Bratusek to answer more specifically.
However, real Norwegian capabilities reveal the converse. No doubts that many of the MEPs should be aware of Norway opinions on this particular issue.

Back in June of this year, the Norwegian company Statoil announced that it would be unable to replace Russia in the European gas market. In an interview published by Reuters CEO of Statoil Helge Lund argued that the company could increase somewhat (supplies – ed.) but it could not replace Russian gas.

And over the past few months after this statement Statoil position has not changed. Moreover according to the data of 8 months of this year, there was a reduction of the Norwegian gas deliveries to the EU by 4 bcm.

In addition Statoil has made a new gas discovery in the Pingvin exploration area in the Barents Sea. According to Statoil estimates the volumes in Pingvin to be in the range of 30-120 million barrels of recoverable oil equivalent. But the discovery is currently assessed as non-commercial.
Thus, there are no real grounds for the proposal of Mrs. Bratusek regarding possibilities to displace Russian gas from EC market by the northern gas supplies from Norway.

The prospect of extending the south direction of gas supplies in particular from the Mediterranean area is meeting with a number of problems as well. But this topic definitely deserves a separate discussion, and we will come to it more than once again.

Much to everyone's dismay, there were many other incompetent answers. Assessing in overall the speech of Mrs. Bratusek at the hearing in the European Parliament, MEP Claude Turmes from the Group of the Greens/European Free Alliance argued that "the Energy Union, climate change - it requires a leadership, and we saw something completely different. There was no leadership, but just attempts of hiding behind the Articles of the EU Agreements... This is the end of progress in EU policy on energy and climate change".

As a result some days later The Parliament rejected Alenka Bratusek by 112 votes to 13, after she faced a strong criticism that she wasn’t up to the job of becoming the EU’s first-ever Vice President for Energy Union.

However in addition to reasonable concerns about our future energy well-being, which certainly our Europe and its citizens deserve to be better than now I have got a feeling that, unfortunately, our highest leaders are getting farther from a reality, carried away by political ambitions and globalist policies.

Now we have to focus on the question for who is it necessary to set up on the starting line of a new challenging phase of our European integration so much an inadequate team? And why should an essential level of energy security required actually for each European citizen be hold hostage because of this obvious incompetence?

Saturday, 11 October 2014

Why doesn’t Europe respond to the threat of shutting down Russian gas transit declared by Ukraine?

The other day the information has appeared containing a statement of Mr. Kobolev, Chairman of the Board of "Naftogaz Ukraine". The essence of his statement is that Russia will shut off gas supplies to Europe, as it happened in the winter 2009.

Where does such a confidence come from? And what do we, Europeans really have to grasp from that message?

The basic meaning of that statement consists in the fact that Ukraine will siphon off gas from the export pipeline this winter.
It is no coincidence that we are sent back to the story of 2009.



What happened in winter 2009? And why was the gas transit through Ukraine to Europe disrupted?
At that time in the absence of a contract, Ukraine siphoned off an export gas as much as they needed, and the Russian side refused to compensate for such an illegal takeoff.

As a result of the conflict Russia shut off gas to Ukraine first since January 1, 2009 and after that since January 5 the gas supplies for European consumers were lowered. And then on January 7 the transit of Russian gas through Ukrainian territory was completely discontinued. After reaching agreements on prices and signing relevant contracts in Moscow on January 19 the supplies of gas to Ukraine and transit to Europe resumed next day. Thus, in the coldest part of winter for more than a fortnight Europe was surviving without the transit gas from Ukraine.

Meanwhile now, dear friends, there is a motion to suppress an undeniable fact that in 2009 Ukraine has neglected its transit responsibilities and their illegal actions caused shutting off the supplies of gas to Europe. In other words, in winter 2009 Ukraine focused on their own challenges of supplying gas to meet a local demand to the detriment of gas consumers in European countries.

In this context, the current statement of Mr. Kobolev should be regarded as a signal to Europe, in response to which our Europe has remained silent! But silence, as we know, means consent! That is, as it turns out, we agree that Ukraine will again siphon off the transit gas intended for Europe?!
Why?

Thursday, 2 October 2014

The EU and Russia are no longer strategic partners, why?

A former Italian Foreign Minister Federica Mogherini appointed as EU’s foreign policy chief on 30 August 2014 stated publicly about it. This official statement regarding one of the important areas of international relations, obviously, will determine the foreign policy of a new team of the European Commission.

However, the question arises whether such a change is necessary for Europe? Will it be for the benefit of Europeans, and could it help reducing the risks of new shocks of the European economy, which only began to recover after the recent crisis years?

And answers here may be different. That, Gentlemen, depends on how to look at it. If we have a look from a policy making point of view, then there exists a great deal of experience in dramatic changes of inter-state relations often based on flimsy political grounds. That periodically occurs. But for business activities this kind of sharp curves in international relations are fraught with serious consequences, and in fact they should be avoided as much as possible.


Some of you are probably far from business and cannot realize fairly well both complexity and significance of this situation. Then let us imagine that you are sailing a boat and suddenly try to make a drastic turn in the direction of your movement. This maneuver creates a high risk that you will lose your balance and overturn. In the same way, similar rash acts in international relations can turn upside down even a successful and stable business that will suffer an undeserved damage.

Therefore, for many people in Europe and for me as well it is very doubtful of that the EU is losing Russia as a strategic partner and that it is a realistic statement, because we see it far otherwise both in theory and in everyday life.

As to theory, almost any university student in Europe should learn from courses of "Business Administration" or "Corporate Governance" that in business a strategic partnership means a mutually beneficial and long-term commitment between organizations. This partnership is accompanied by investment process, exchange of various assets, joint work to strengthen their market position. And all that is going on for many years.

Meanwhile in practice, we are witnessing now a serious undermining of strategic business relationships, imposing of economic sanctions as a tool of political pressure that, I would like to emphasize, creates significant problems for business partners.

In this case, we are talking about our European Union and Russia. Currently, our politicians' activities, especially in Brussels, cause a great concern and displeasure in European business circles. It happens because European business for its part sees no reasons to freeze its long-term partnerships in Russia. And the more so as European business dealing with Russia is against such rash political acts and sanctions that endanger to turn "upside down" many strategic projects that have been developed with mutual benefit for many years.

An outstanding example is the position of the Association of European Businesses (AEB), which brings together hundreds of European companies working with and in Russia. There are many well-known international energy companies among AEB members, including Dutch companies Gasunie and Shell E & P, French GDF SUEZ, German companies Wintershall and E.ON, Italian companies Eni and Enel and others In September the AEB sent official letters to all 28 Heads of States and Governments of the EU, as well as of Russia and Ukraine with request to protect foreign investors from both sides from any further restrictive measures.

It is stated in the letter in particular that there are members in AEB with businesses in sectors, which would be directly affected by these measures. Further on the letter read as follows “the introduction of such measures could lead to a serious decline in production volume and the number of workplaces, affecting not only the manufacturers themselves, but also suppliers and retailers working in these sectors. All this would harm not only the business of the companies concerned, but also fiscal revenues through the loss of tax and duty payments. The AEB strongly requests EU and Russian authorities to protect foreign investors from both sides from any further retaliatory measures”.

In other words, to protect against those forces that are stubbornly trying to cause troubles between the European Union and Russia and to undermine mutual economic relations, which was built for the last decades. Therefore, it is a matter of urgency to realise the importance of this situation and as a result to demonstrate on the contrary a political goodwill by supporting strategic partnerships of European Businesses in Russia.

Now you can see that currently such pressure on international business partnerships are rather illustrative of the energy sector, where the EU and Russia have reached significant results. Due to a high share of Russian gas in the total EU consumption as it was mentioned in previous articles Russia holds the first place among gas suppliers, although only slightly ahead of Norway. In Brussels, it is commonly known, this fact is indicated as something containing a threat to our energy security. However, it is beyond our doubts that in previous decades the imports of energy products from Russia went up entirely under conditions of mutual economic interests. That was correct for energy prices too.
For example, the official report on statistical analysis of EU trade in energy products, with focus on trade with Russia says the unit values for Russian imports of the two most important products - crude oil and natural gas in gaseous state - were of a similar size to those for the EU’s other trade partners in these products.

It's interesting to note that the relative importance of the EU in Russian exports of energy products decreased over the period 2005 - 2012, the same report points out. This means that Russia is also diversifying the geography of export deliveries of energy products, including natural gas. It reminds us how several years ago European energy companies enthusiastically discussed their participation in the project devoted to the Shtokman gas field development in the Barents Sea with subsequent deliveries to Europe. But later on Russia changed the geographical priorities in further development of production and exports of gas commencing new projects far to the east of the country.

But we see this process of gas flows relocation not only on the east. Expansion of energy supplies especially routes aimed to South and South-East Europe now provides for a real opportunity of obtaining a reliable gas flow from Russia thanks to construction of South Stream gas pipeline, which is being built to bypass a very unstable region of Ukraine.

No wonder many of us who are following the situation would like to join the call of European business for reducing a political rhetoric of Brussels politicians on cancellation of strategic partnership with Russia, which is being alleged in support of Ukraine. The ratification of the EU-Ukraine association agreement by comparison with a political impulse of reducing the strategic partnership with Russia in energy sector now looks like as an exchange of Russian gas for Ukrainian schnapps. We could hardly imagine that anybody does not understand the irrationality and the disparity of such an exchange for Europe.

I am confident that just as business consumers of gas so too owners of households in our countries do realize that if the EU energy market would be at least partially "liberated" from the so-called Russian gas dependence, a vacant place will be occupied by other energy supplies mostly imported at new prices well above the former prices.

Meanwhile, EU Trade Commissioner Karel De Gucht has recently stated once again that he would want to see oil and natural gas exports from the US to Europe included in the forthcoming transatlantic trade free trade zone and that allegedly Europe wants US oil and gas to help offset its dependence on Russian energy. And what is more the high level representative of Brussels pointed out that it should generate a pressure on Russia due to a downturn in world energy prices. But to expect a decrease in world prices as the phrase goes, indulge in wishful thinking. A prevailing majority of experts argue against anticipated downturn trends of world prices of energy in a near future.

In conclusion, I would like to quote the words of the well-known American economist Michael Porter: “The essence of strategy is choosing what not to do”.
The question remains: why to be exact does not do it?

Sunday, 21 September 2014

I cannot ignore the remarkable event near Slovakia–Ukraine border. Why?

It is a Grand Opening of gas supplies from Slovakia to Ukraine.
Prime Minister of Ukraine Arseniy Yatsenyuk, Prime Minister of Slovakia Robert Fico and Director for Internal Energy Market of the European Commission Klaus-Dieter Borchardt opened the commercial Vojany-Uzhgorod pipeline in Veľké Kapušany in Slovakia that was really an important event, a very important ... for Ukraine!

It is no wonder that Prime Minister Yatsenyuk was quoted as saying that “we replaced 40% of gas, which we had previously bought in from Russian Gazprom, due to the opening of the reverse from Slovakia and opened opportunities for Ukraine to buy gas in Europe”.



The nominated volume of a reverse supply of gas from the territory of Slovakia to Ukraine amounts to 27 mcm a day, or about 10 bcm per year.

However as far as Europe is concerned, how is this event important for us? From the point of view of solidarity and other political incentives, everything is clear.
And how is it important for us in view of coming winter?

And also what does it matter in view of the dispute between Ukraine and Gazprom?
And especially, how it is important under the conditions when there is not enough gas in the Ukrainian UGS in order technically to provide transit to Europe in winter season?

But particularly interesting question is that whether our gas consumers in Europe understand what the gas reverse really means on the occasion of which this Grand Celebration was arranged?
Sometimes the reverse is called "virtual". Why?

Let's clear up in case of reverse whether the gas from Europe is transported in the direction of Ukrainian consumers physically in the literal sense of the word?
I'll start with the most important - such a reverse can exist only when there are supplies of gas from Russia to Europe. And no other way!

That is because just a part of the Russian gas after crossing the border between Ukraine and Slovakia then is rotated 180 degrees and is transported by the other pipe back to Ukraine. But upon arrival back on the territory of Ukraine, this gas is returned again into the transit pipeline directed to Slovakia. And by such a way this so-called reverse gas is pumped through a relatively small circle made with pipes and other equipment. It should be mentioned that the construction of "gas roundabout" cost 20 million Euro.

It is noteworthy for us that European and Ukrainian policy makers call now these operations of whirling gas from Russia around the boarder as "diversification of supply."
It is important that gas meters measure the volume of gas both on the way from Ukraine to Europe and on return way when it is coming back into the Ukrainian territory.

In this situation the same physically gas can be taken into metering records of volumes of reverse and transit gas many times. But this gas only is circulating around the ring of pipelines and is not sent back to consumers in Ukraine, for whom it is allegedly intended. In fact, the reverse gas is impossible to transport technically in eastern direction further back to Ukraine, because there is no any gas transmittal pipeline in Ukraine running in this direction opposite from Europe. There is only a transit long distance transmittal pipeline delivering gas in one direction - to the west!

You would ask how in this case the reverse gas is reaching consumers in Ukraine? It's very easy to explain since it is no means the same reverse gas. As a matter of fact instead of it another gas is taken out of the volume of TRANSIT GAS (!) in any place in Ukraine convenient to meet local needs.
Thus, the "virtual reverse" in fact turns into legalized SIPHONING OFF transit gas intended for European consumers.

This scheme reminds us how we transfer cash over long distances, for example, using Western Union services. Then it looks like as we put cash in one "pocket" of this company in order to get them back somewhere far away out of "another pocket." We mostly trust such a virtual cash transfer service as reliable but nobody expects to get back remitting cash out of "another pocket" more than a send amount.

In contrast with financial services, the virtual reverse gas scheme in Ukraine causes a great concern. Properly speaking, this is exactly what today all of us are afraid of. Moreover, before now we felt ourselves the same, and there are certain reasons for it. Why?

The point is that at present there are all prerequisites that the dispute between Ukraine and Russian Gazprom will not be solved in the near future. In this case, on the one hand, Gazprom will not resume gas supplies to Ukraine. On the other hand, Ukrainian UGS are not filled with gas at a volume that is necessary for simultaneous support of both domestic consumption, and transit to Europe.
It means that in December Ukraine will proceed siphoning off the transit gas for its own needs deeper and deeper getting into a "virtual pocket" of the transit gas. In previous times it was illegal and was regarded as theft. Now the European Union has legalized this scheme and officially inaugurated a reverse gas supplies from Slovakia!
Of course, the first thought is that we could stop the reverse. Only the question arises whether is it possible?
Let's see what do we know about the contracts?
It was stated by the Slovak company Eustream that "according to Open Season procedure (binding of volume commitments for interstate transportation service of the reverse to Ukraine - Ed.) several European firms have provided binding bids for pumping gas through the pipe ...". However company Eustream refused to name these firms referring to a confidentiality of commercial transactions and only stated that their approximate number was from 5 to 10.
In other words supposedly they did not know anything …

It causes a big concern and a keen disappointment with that at present time, trying to please our Atlantic allies, we are deleting previous great efforts of our European business to establish long term relations with Russian companies, put off indefinitely conclusion of many prospective contracts, impeached the existing contracts in the energy sector, and in addition, as a backward result, created serious problems for our agriculture.

And how much would it cost us to make one more effort in this direction of shutting down relations and to opt out of energy supplies at all?
Why not?

PS. As an epilogue, when this article had been already completed, it was reported that the volume of daily gas supplies from Russia to Europe reduced. Information from different sources is very controversial. Some sources have reported about a decline in gas supplies, and others said that everything is fine. But it is important that just those companies and countries which are dealing with the reverse gas to Ukraine have stated about gas supplies reductions.
I have ventured to suggest that this problem, as mentioned above, is the result of the "legitimate" gas offtake from transit pipeline in Ukraine for their own needs in the volume exceeding the amount of reverse gas circulating at the border.

Thursday, 11 September 2014

Fitch: Europe can’t reduce its dependence on Russian gas. Why? 

Despite frequent statements by European politicians regarding the need of reducing dependence on Russian gas, the chances to do it are few, says Fitch Ratings report "How to live without Russian gas." Gas consumption in the EU will increase and there is no substitute for Russian gas, taking into consideration weak prospects for shale gas production, lack of facilities available to import LNG and the absence of significant non-Russian pipeline projects in Europe.



We could theoretically lower our dependence on Russian gas, reducing consumption, but Fitch's analysis shows that in the long term demand for gas in the EU will only increase - an average of 1.3% per year over the next 15 years. In 2013, the European demand for gas was 530 billion cubic meters and Russia has supplied 145 billion, 27% of this volume.

Gas could be replaced by oil, coal or nuclear power, but all of these alternatives involve "economic, political or environmental costs." In addition, Russia is not only significant supplier of natural gas, but also oil, coal and nuclear fuel. In the past year, Russia has covered 36% of the needs of European nuclear power plants in enriched uranium, and Bulgaria, Czech Republic, Slovakia and Hungary depend on Russian nuclear fuel supplies by 100%. Renewable energy projects are very expensive and without significant government subsidies cannot compete with conventional energy resources, said Fitch.

In the long term, Russia will remain the dominant supplier of gas to Europe, as alternative sources are insufficient, the report said. Conventional gas production in Europe has been steadily declining, and "shale revolution" like in the US is not possible in Europe. Shale gas can only make up the reduction of conventional gas production. Concerning the technology of hydraulic fracturing, overruns of water, use of chemicals,  risk of seismic activity as a result of drilling have led to "social restraint, or even resistance" towards the prospects of shale gas production in Europe, says Fitch report. As for high expectations for LNG imports, the growth of global liquefaction capacity, according to Fitch, will not be enough to compete with Russian gas in Europe.

A similar view on the future of European gas security shares International Energy Agency (IEA). "In the short term, Europe has very few opportunities for diversification of gas supply. In the foreseeable future Russia will be a vital need for Europeans ", - said the director of the IEA Maria van der Hoeven at the energy conference in Norway. Quick change of energy supplier is unlikely for several reasons.

Firstly, the gas consumption in Europe is growing steadily and domestic production is decreasing. According to 2013 IEA report, the annual gas import to the EU will rise by a third and will be 450 billion cubic meters by 2035. "Diversification takes time, - said Maria van der Hoeven. - It is necessary to invest in infrastructure and improve relations with potential suppliers".

The IEA report also predicts that LNG export from the US will be about 50 billion cubic meters by 2035. Therefore, US supplies cannot fully meet European market demand. "Billions of cubic meters of LNG won’t solve the issue as European gas production falls to similar volumes," - stated Maria van der Hoeven. She also noted that now the center of gas consumption is shifting to Asia where gas prices are higher, and Brussels should not count on the entire volume of American LNG export.

Thus, we have to pursue very smart and balanced energy policy with sustaining strong relationships with current suppliers and developing new opportunities to secure energy supplies for the future.

Monday, 1 September 2014

Why Brussels and Washington boost pressures on Bulgaria to halt construction of the pipeline South Stream attempting to create near Ukraine another Bulgarian bastion against energy supplies to a number of countries in South and South East Europe?

And this "why" is a particularly acute issue amid the civil war- struck "Ukrainian Energy bastion", which threatens not only to default of Europe's energy security, but also causes a significant profits loss for national economy of several countries in South and South East Europe.
Maybe there is no more need to remind you that Ukraine is standing in the midst of events extremely aggravating the problems of European energy security. However, regardless of the public opinion of Europe's majority with the political support from Brussels and our Atlantic allies there was a change of political administration in Ukraine, which recently resulted in erection of like-kind the "Ukrainian energy bastion" in this country. Its goal is a gas-blackmail by threatening to block the channels of Russian gas supplies to Europe that have been properly functioning for many decades.



It stands to mention about the negotiations between the Ukrainian authorities and potential western investors, which, according to the law adopted by the Verkhovna Rada, can join a newly created company - a gas transport operator to be established for managing the Ukrainian gas transportation system. There is American company Chevron among these potential investors, so you can expect to see the star-spangled American banner above the "Ukrainian gas bastion" soon.

What is the Europe's reaction on obtaining control over the transit of Russian gas by an American company? Most of all, obviously, it should raise discontent of Europeans… But in Brussels politicians are still telling us about a monopoly position of Russian gas supplies to Europe and apparently underestimate the consequences of the Ukrainian crisis.

The Ukrainian crisis has provoked an interchange of European economic sanctions against Russia and the Russian counter sanctions. Many European companies has already suffered from these responses of Russia.
Furthermore any of us has to think hard finding out that in Ukraine the law on sanctions also was adopted providing Kiev for a possibility to stop transit of Russian gas to Europe. A great deal of people do not believe that Ukraine will apply anti-gas sanctions in practice. But taking into account the current political situation in Ukraine we cannot exclude any even the most unexpected and inappropriate actions. After all, if the current Ukrainian government unleashed an internecine civil war to assassinate their own people, it is unlikely possible to hope they will take care of people in other countries.

There is a high probability of upcoming severe scenarios of deterioration in Ukraine and expanding scales of heavy consequences too, which are unlikely anyone can adequately anticipate or much less take an effective control over them. Moreover, even if gas transit via Ukraine is not blocked all the same nobody gives assurances of preventing an illegal uptake of Russian gas intended for Europe in winter season.
It seems to be like a natural disaster with almost unpredictable scenario, like the one that is brewing in Iceland, where about thousand recorded recently episodes of earthquake denotes that an eruption is maturing in depths of Bardarbunga volcano. The principal point is the same - if it can happen, how to limit the effects.

There is a discussion about paradox of the Ukrainian crisis, which, on the one hand, overflows with horror of huge economic and human losses, but on the other, although it sounds cynical, the crisis could also result in a beneficial effect. It means that the crisis in Ukraine gives an important signal to our politicians about the threats related with the "Ukrainian gas bastion", is not it? In fact this signal would have to convince our politicians that at least in the current decade, while a real alternative to Russian gas is still absent, it is necessary to use the opportunity to diversify gas supply routes through the construction of the gas pipeline South Stream bypassing half-demolished and soon sinking into a bitter cold Ukraine.

However, our hopes of even such a partly positive outcome are not really justified. There is nothing that can encourage our optimism, since actually we see that a real direction of policy makers in Brussels and Washington has almost nothing to do with our expectations of rational choice, the choice in favor of Europeans! On the contrary, there is an urge over there to use along all possible excuses to prevent the implementation of the South Stream project, despite the fact that its construction was agreed on the level of bilateral intergovernmental agreements a long time ago in 2008.

Bulgaria happens to be in the center of the Brussels-Moscow confrontation over Ukraine. Representatives of the European Commission and even rare visitors - US Senators have repeatedly visited Bulgaria to make Bulgarian government freeze construction of the South Stream gas pipeline, thereby creating another "Bulgarian energy bastion" in the way of gas supplies from Russia.

It's disappointing to see that political pressure from outside is put upon the country - one of equal members of our overall economically powerful European Union, but which, meanwhile, is still very much inferior to other member states in economic development. According to Eurostat figures published in July the level of GDP per capita in Bulgaria is 45% below the average at 28 countries of the EU, while, for example, in Austria it is by 29% higher than the average. And in terms of actual individual consumption per capita in 2013, Bulgaria was in last place behind all 28 EU states.

Appealing to common sense there should be a double larger economic aid for Bulgaria instead of attempts to push this country under even more difficult economic situation.
Besides other countries where alongside with Bulgaria the South Stream gas pipeline is to be laid are not distinct from Bulgaria in economic development and also remain at the level below the average with the exception of Austria and Italy.

Let's imagine for a moment how much all of these countries are interested in gas supplies and new gas infrastructure development and how they worry and with what concern and sympathy they look at political disputes in Bulgaria against the construction of the South Stream pipeline, triggered by the efforts of politicians from Brussels and Washington. It turns out that Bulgaria and all these countries happen to be on the edge of losses of these future economic and social benefits. Initially Brussels dictates their terms to South and South East countries, but there is nothing adequate offered by Brussels politicians to them as a reasonable reimbursement. I doubt that it is a surprise for European business especially working in agricultural sector because they have already tried to get reimbursements to cover the consequences resulted from Russian counter-sanctions.

In the long term, without importing Russian gas ultimately some European countries will have either to start production of shale gas, or to buy LNG or pipe gas from other sources at higher prices. And the coming months unfortunately rather many Europeans may spend in uncomfortable cold homes and offices under the conditions of tightening electricity savings.

Of course not the whole Europe will freeze. Most of the EU will continue getting electricity, gas and heat. These problems will affect the population in South and South East Europe, by other words in countries beyond the "Bulgarian gas bastion", including countries outside the EU. The situation might turn up a real disaster for the region located "beyond the bastion".
The current Ukrainian route provides 60-70% of the needs of the South and South-Eastern region of Europe in gas. In 2013 the EU obtained 69 bcm of gas via Ukraine, including Bulgaria - 2.5 bcm. Turkey imported 13 bcm, Serbia and other Balkan countries outside the EU - about 2 bcm of gas, Moldova together with the Transnistria - about 2 bcm.

Russia covers via the Ukrainian route 84% of Bulgaria's requirements in gas, 34% of Turkey and 100% of Serbia and Moldova. Slovakia and Slovenia is 100% dependent on Russian gas transit via Ukraine. Austria, Greece, Czech Republic and Croatia - on 50%, Italy - on more than 40%.

As you can see, Bulgaria is one of the most dependent on Ukrainian transit countries in the EU and currently consumes 3.4 million cubic meters per day. In case of deteriorating of the situation caused by transit shutdown Bulgaria would be forced to start a gas withdrawal from the only one in the country UGSF "Chiren". But it is filled with gas only by 75%, and these stocks are not enough for the whole winter season. It would be also difficult to ensure the gas supplies to Greece. Therefore, Bulgaria, Turkey and Greece could face with the most severe gas shortages even before Christmas.
It doesn't take too much time to see what will happen.

Feeling better when see that so many people in so many European countries look forward to the results of the negotiations of the European Union, Russia and Ukraine to be commenced again for searching a way out of these "gas bastions." Then why not?

Monday, 25 August 2014

The price for GAS Future started to raise long before winter this year. Why?

According to Bloomberg, gas future for September delivery rose in London at 21% over the past six weeks.



Usually in summer, Russian or Norwegian long-term contract gas is more expensive than spot market gas at average of 100 euros. However, when it gets colder gas price in the spot market begins to grow, and in winter, it is higher than long-term contract price. But this year at least two months before the heating season prices on the spot market have already started to grow. What is the reason?

The fact is that last month there was still a hope that the issue with Ukraine's gas debt to Gazprom would be solved by September. However, ongoing tensions between two countries do not leave us a chance that the gas crisis can be resolved before winter. Fears on gas crisis that can stop gas supplies from Russia to South-Eastern Europe make prices go up. If the gas crisis repeats in winter 2014-2015, spot market gas price can climb to unprecedented heights.

Unfortunately, Ukraine has been destructive in solving gas issue. Recently, Ukrainian parliament adopted a law on sanctions against Russia giving the government a right to stop the transit of Russian gas to Europe at any time.

Instead of taking a step forward to solve the gas crisis, Kiev is committed to escalate the conflict. When the European Commission is trying to develop mutual understanding between Ukraine and Russia, Kiev passes the law about the sanctions that makes ​​it clear that the conflict with Russia is getting even worse. This means that the likelihood of another gas crisis this winter is very high.

In case of gas transit problems Bulgaria and Greece will be seriously hurt. We in Austria, and people from Slovenia, Italy, Croatia and Hungary would also feel gas hunger. Slovakia and Czech Republic, by the way, are on a safer side as the get supply of Russian gas via "Nord Stream". But for countries in South-Eastern Europe there is no other way to get gas, except through Ukraine.

The existing threat of disruption of gas transit will continue to exert upward pressure on prices. Now, Ukraine gas storage facilities are only half filled. A country torn by internal conflicts, in August has already begun to limit the consumption of natural gas. We can only guess what will happen when the heating season starts.

Under these conditions, our European leaders should be more active in convincing all parties to negotiate. It is evident that the consequences of Ukrainian energy crisis are quite dangerous for some European countries. But we still hear our Euro politicians’ statements that repeat statements of US Department of State. It seems that it would be Americans to suffer without gas this winter and not Bulgarians or Greeks, for example.

Why?

Sunday, 17 August 2014

Why do we find ourselves in the position of the gas hostages of Ukraine?

Only a short time ago many of us wandered what will happen in Ukraine, if Russia decides to shut off gas supplies to Europe through the Ukrainian gas transportation system, as in 2009. Mostly now the Ukrainian crisis is presented to Europeans as an outcome of the aggressive policy of Russia. So for us before now, there were more or less sound reasons for considering this further possible turn in gas disputes as an unfriendly action from Russia.

But recent events have surpassed my intention to consider how Russia shuts off supplies of the Siberian gas to Europe.
Ukraine turned out to be ahead of what I could expect as well as probably many others who with concern and often with a growing disapproval evaluate the situation related to the supply of gas to Europe.
Although to be obvious, a new move in the gas disputes was directed by the Atlantic patrons of Ukraine. However, it is not always… Instead of cutting off gas supplies Russia had reacted for Western sanctions and imposed a ban for imports of Finnish and Lithuanian milk, as well as vast majority of other agricultural products from the EU for one year. And after that instead of Russia now Ukraine is declaring its readiness to cut off gas transit!


Ukraine's parliament has recently adopted a new law with a package of sanctions that includes about 30 measures. Although the law doesn't mention Russia as its target, the Ukrainian Prime Minister Arseniy Yatsenyuk said earlier it would open the way to impose sanctions against Russia. One of them is intended for legalizing a ban on transit of Russian natural gas and other energy resources through Ukraine territory!
It is noteworthy that this law transfers the right to impose sanctions to the Ukraine's National Security and Defense Council as if the Board of Ministers of Ukraine would not to be willing itself to take a full responsibility for consequences of its future application.

Now, Ladies and Gentlemen, please feel yourselves comfortable near your computers and tablets and prepare for the news that you are being threatened with blackmail and that it will be a racketeering activity of the Ukrainian authorities!

Assuming that your attention to the political crisis in Ukraine and a related war of economic sanctions against Russia largely (sorry for my cynical viewpoint) has been associated with your curiosity as of a detached observer. But now everything has changed dramatically because that the present action of the Ukrainian authorities obviously poses a direct threat to our well-being.

So far, our politicians have argued about a potential threat of stopping supplies on Russia's initiative, reasoning in this regard that it proves a vital need to reduce as soon as possible "dependence on Russian gas." Although I already mentioned previously that Russian share in an annual gas imports to EU actually is not higher than Norwegian.

But as a matter of fact it turns out that now there is a necessity urgently to discuss the problem of how to reduce dependence on a transit monopolist that is Ukraine. Because in accordance with contractual obligations Ukraine has to provide transportation through its territory of more than 60% of Russian gas supplied to Europe.

So ultimately Ukraine does not care of losing confidence of international business that, as a common rule, should be the most important attribute of any country.

Moreover, the Ukrainian government recognized the fact that shutting off Russian gas transit to Europe would result in a huge loss of about three billion dollars which Ukraine annually earns on providing gas transmission services.

However, Mr. Yatsenyuk is quoted as saying that by such a way Ukraine is going to bring to an end gas dependency from Russia. At the same time, he noted that Ukraine expects that financial aid will be granted by international financial institutions, including the World Bank.

Here I would like to remind you that the full name of the World Bank - the International Bank for Reconstruction and Development. For most of us it is very questionable whether this respected international organization established in order to promote global development, would compensate the huge losses caused by conflicting actions of the Ukrainian authorities, thereby recognizing and by certain way encouraging this attempt of Ukrainian state racketeering aimed at Europe.

Ukraine is eager for depriving Russia of income on gas exports but at the same time as a result Ukraine will block gas supplies to consumers in Austria and in all the countries of South and South-East Europe. That looks like a double strike, is not it?

At the moment I would rather not to sink further into geography of deliveries, let's consider later on how it reflects primary reasons of gas confrontation.

Meanwhile I would not be surprised if some our politicians will continue to remind us the main characters from the popular sci-fi thriller "Men in Black" who did not take off their black glasses in process of manipulating a public awareness. In our real situation political leaders first of all in Brussels also are able to release an information flow which brightly blows up in front of our faces and in our minds, erasing memory. And then, as if nothing had happened, they could start arguing that we have to blame Russians for everything and for disrupted gas supplies for sure. In politicians' opinion allegedly the Ukrainian threat of shutting down gas transit to Europe only more confirms that this is Russia - an unreliable supplier…

It's time to remind ourselves that ultimately it is no matter at all what kind of glasses "men in black" wear and what kind of "flashlights" are in use for promoting a contradictory information. Anyway, it is impossible to ignore the fact that since 2008 after signing the relevant international agreements, for six years Russia has been implementing an ambitious in terms of international scope and a technologically advanced gas pipeline project South Stream, bypassing the Ukrainian gas transport system in order to secure a number of European countries from newly appeared Ukrainian gas blackmailers.

It would look as if nobody realizes in Ukraine that they are going to block gas to Europe, and what the implications will be for Europe. Even though Mr. Yatsenyuk is quoted as saying "We understand the price should been paid by Ukraine (but it is not only those 3 billion USD - Ed.). But we are willing to pay for their independence".
Here you are, there are reasonable questions then. What about us, Europeans? Are we, European citizens willing to continue further to pay for the independence of Ukraine? And what do we expect to get in return? Answer with grim humor might be that in upcoming winter it would not be possible to get anything instead of gas from half-collapsed and half-plundered Ukraine, even neither gorilka nor salt pork which according to their habits could facilitate our stay in unheated homes. And before the winter comes, field rations of NATO soldiers sent together with humanitarian aid to Ukraine will be on the wane.

Not long ago in June in Brussels, the Ukrainian heads and leadership of 28 European countries signed the Association Agreement between Ukraine and the European Union. Under the Agreement, Ukraine should move along the path of deepening political, economic and trade relations with the EU Member States as well as develop cooperation in the fields of justice and security. Two months ago, many of us still were sure that Ukraine really want to be a partner of the EU. However, now our expectations have vanished.
Whether is it possible to consider partnership in case, when, instead of efforts for promoting cooperation Ukraine deliberately jeopardizes an energy security of its strategic partner?

There is another strange assumption that by imposing anti-Russian sanctions Ukraine is trying to support the policy of prohibitions against Russia carried out by the EU and Western allies. But it seems that taking part in this political game on the EU side, Ukraine scores a goal against their own — not the opposing — team, in other words plays against our Western European team. Meanwhile, it is not unlikely that Ukrainian politicians allegedly act in favor of our Western European team, but, in fact, they perform what suggested from behind the Atlantic, as it happened more than once.
Moreover, shutdown of transit pipelines obviously would create not less favorable impacts than new problems. So, for instance, it is hardly possible for Europe to get penalties for the gas contracts infringement from Russia in case of violating gas supply, since such disruptions must be classified as results of force majeure.
At the same time such a threatening precedent would raise the conclusion that there is a vital need in seeking gas detours around both technically and also politically unreliable Ukraine. In this context, it is even more convincing what Russia is making now a significant positive input into the problem of diversification of gas supplies by increasing up to a full capacity of the Nord Stream gas pipeline and by constructing a new South Stream gas pipeline.
Besides another consequence of switching gas supplies from Russia to Europe at new directions a commercial value of the Ukrainian GTS estimated by Ukrainians to 25-35 billion USD, will fall by half.
Therefore, open questions with a multi-billion-Euro cost for all taxpayers. How will Ukraine and EU together with the Atlantic allies raise such large financial resources? What countries, what international financial institutions, and of the topmost importance - at whose expense are they going to reimburse a collapse of the Ukrainian GTS and everything else?
In summary, it remains to say that despite all the political turmoil, Ukraine obviously has to solve gas disputes with Russia on a mutually acceptable basis not using GTS as a monopoly tool for suppressing consumers of transit services both in the West and in the East.

Ukraine will face huge challenges painstakingly seeking reasonable ways of modernizing its gas transport system. It will take years and for all that time ultimately European consumers should mostly rely on gas supplies from existing proven suppliers, including Russia too and Russian pipelines - so-called Streams from the north and from the south bypassing Ukraine with its long-running political, economic and technical problems.

And then, in some years, when at last a stable recovery and expected growth of the European economy will require new gas resources, we all look forward to the long-term results of implementation of the European Commission strategy for expanding the sources of energy supply.

Why Ukraine attempts to put us into a corner as gas hostages?