Nord Stream 2

Gas pipeline plan 'will kill Ukraine'

gas
Ukraine worries about Russia turning off the gas supply tap.
  • Why it matters

    Why it matters

    Ukraine believes that by bypassing it with Nord Stream 2, Russia is using the pipeline as a political and economic tool to strangle it.

  • Facts

    Facts

    • Nord Stream 2 is an upgrade of the existing Russian-managed pipelines running under the Baltic Sea from Russia to Germany and across Europe.
    • It was given the go-ahead in September and could be open in 2019.
    • Ukraine stands to lose $2 billion (€1.84 billion) in transit fees if the project goes ahead.
  • Audio

    Audio

  • Pdf

It’s a case of corporations versus governments: BASF, Shell, E.ON, the French utility company Engie and Russia’s Gazprom want it, several E.U. states, Brussels and Ukraine don’t. Now the battle lines over the construction of the Nord Stream 2 natural gas pipeline through the Baltic Sea are being drawn.

The plan is to build two additional pipelines next to the two existing Nord Stream pipelines between Russia and Germany, to open in 2019. This will enable more Russian gas to be pumped to central and southern Europe without having to route it through conflict-hit Ukraine, currently a major transit country. The corporations agreed to the construction in September, but now opposition is forming.

Germany will play a big part in the success or failure of Nord Stream 2, which will be managed by Russian state gas firm Gazprom. The corporations know German Vice Chancellor Sigmar Gabriel supports them. Opponents of the project hope German Chancellor Angela Merkel will intervene on their side. Mr. Gabriel has said it’s important that decisions on Nord Stream 2 are left up to Germany, and not Brussels, and that Ukraine must be guaranteed other gas transit rights.

But Kiev is opposing Nord Stream 2 with all its power, as are Slovakia and Latvia, who will also miss out on hundreds of millions in transit fees if the upgrade goes ahead. Robert Fico, the prime minister of Slovakia, has accused the pipeline’s backers of “making idiots of us.”

Ukraine is also worried about the political and economic motives behind Nord Stream 2. In an interview, Andriy Kobolev, chairman and chief executive officer of the Ukrainian gas company Naftogaz, discussed his concerns that Russia is out to strangle the country’s economy.

 

Naftogaz and Gazprom have come to an agreement over Russian gas delivery this winter. Are you satisfied?

Yes, since 70 percent of the gas we need is now coming from Europe. That is part of our diversification strategy. We have freed ourselves from the embrace of Russia and are now getting better prices. We have just signed another contract with a German supplier and the price is more favorable for us than when we are forced to buy from Gazprom. Gazprom has only given in concerning price because we now have competition in the supplying of gas for Ukraine.

Do you still need Russia as a supplier at all?

Yes, because we do need large quantities, above all in the peak consumption times in winter. That’s when Gazprom is the supplier who can deliver the largest amounts of gas when needed in the shortest time. We believe that we can now get through the winter without problems.

Russia wants to eliminate Ukraine as a transit country for gas and talks about outdated pipelines …

That isn’t true. Our system works even better than the Russian one. In Russia’s attempt to bypass us, it isn’t a matter of technology or economics. It is pure politics. Russia couldn’t beat us militarily in Eastern Ukraine, now it is trying it through economic measures. That is why we are supposed to be shut off as a transit country. But that will be very expensive for Russia.

But not for Ukraine?

Yes, it will. We will lose annually at least $2 billion (€1.84 billion) in transit fees. Russia wants to take this money from us. That is why we are hoping for Europe’s solidarity in not approving the bypassing pipelines. We would then be even more dependent on European aid. But it isn’t just about us, it’s also a matter for others who would lose out, such as Slovakia.

nafto
Andriy Kobolev’s Naftogas stands to lose billions in transit fees if Nord Stream 2 goes ahead. Source: DPA

 

So what do you expect?

If the European Union were to approve a new Baltic Sea pipeline, that would be a fatal signal for Europe in matters of solidarity. There should be solidarity not only in the refugee issue but also in natural gas. And Ukraine is now also allowing European investors to become shareholders in the Ukrainian gas system.

If Nord Stream 2 comes, is Ukraine finished as a transit country?

Gazprom and the E.U. could still use us as an alternate route. But when no additional quantities of Russian gas have to be transported to Europe above the volume planned so far, our transit pipeline would be economically destroyed. When Nord Stream 2 is running, Ukraine is dead as a transit country for Russian gas.

Many of your new partners – like RWE, E.ON and others – want a share in Nord Stream 2.

We can’t stop them. But the second Baltic Sea pipeline is a purely political decision and economically senseless.

It is also just as much a political decision that more and more foreign executives are moving to the top of Ukrainian state companies. Are you afraid of being replaced by a foreigner?

I see nothing bad in it when professional Western managers come to us. As a Ukrainian, I am ready for the competition.

Even when it’s your head on the block?

If there is someone who can do my job better than I can, then I’ll just have to live with it. That’s a question of fair competition, and I consider myself a professional, have experience abroad, have worked for international banks. Whoever wants to live according to European standards, as we Ukrainians do, must play according to European rules.

There have already been some gas price increases in Ukraine. Are market prices now being paid?

No, that won’t be the case until April of 2017. We will be incrementally increasing our prices until then. It’s hard for everyone.

 

Mathias Brüggmann is the head of Handelsblatt’s foreign affairs desk. To contact the author: brueggmann@handelsblatt.com

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