Ukrainian president fails to relocate South Stream

There is no sense in building another pipeline in the country, Gazprom says.

If the Russian-European pipeline is laid across Ukraine instead of the Black Sea, that would significantly reduce construction costs, Ukrainian President Viktor Yanukovich said Friday. While experts argued whether the Ukrainian leader was joking or speaking seriously, Gazprom responded with a firm “no.”

The sensational announcement was made at the International Forum in Yalta precisely at the moment when participants in the construction of the South Stream Pipeline (Gazprom, Italy’s Eni, Germany’s Wintershall and France’s EdF) signed a shareholder’s agreement at another International Forum in Sochi.

“We are offering a flexible approach without the construction of the South Stream. The South Stream should run through the south of Ukraine, on land,” said Yanukovich. “This will be five times cheaper than originally estimated.”

His words really stand out from the statements being made by Ukraine’s political elite, who are asking to revise the contract between Gazprom and Naftogaz. The 11-year agreement was signed in January 2009 and endorsed by the then-prime minister of Ukraine, Yulia Timoshenko, who is currently serving time in jail on abuse of authority charges. The price of gas is too high, say Kiev officials, and Gazprom must lower it.

If Russia does not meet Kiev halfway, the Ukrainian government could demand a revision of the contract in an international court, liquidate Naftogaz (which, under the contract, is the buyer), or reduce fuel purchases from Russia – as much has been threatened recently by Yanukovich and Ukrainian Prime Minister Nikolay Azarov.

In the fourth quarter of this year, Kiev will be forced to pay about $400 per 1,000 cubic meters of gas, the country’s fuel and energy minister, Yury Boiko, said on September 16. Meanwhile, an acceptable price would have been $230, Naftogaz chief Yevgeny Bakulin said earlier.

Building a pipeline through the territory of Ukraine is economically impractical, said the deputy chairman of Gazprom’s board of directors, Valery Golubev, in an indirect response to Yanukovich at the International Investment Forum in Sochi.

“We could build a gas pipeline through the Crimea to Yevpatoria and then through the Black Sea,” said Golubev. “But what is the point of doing that, when we could simply take a direct route?”

Together with another gas pipeline – Nord Stream, which runs along the bottom of the Baltic Sea and construction of which was completed in August – South Stream greatly reduces the risk of unpredictable behavior of transit countries. Due to this fact, there is no reason to extend a pipeline through Ukraine, say experts.

“I was in the audience when Yanukovich made his announcement,” said Igor Burakovsky, director of the Ukrainian Institute for Economic Studies and Political Consultations. “He was quite serious in making the proposal. But now, many loud statements are being made in the midst of the heated debates between the two sides. I am not seeing any comprehensive plans or shifts. I don’t think that the problem will be resolved during the September 24 meeting between the Russian and Ukrainian presidents in Moscow. I am confident that the meeting will be another confirmation of the parties’ positions.”

This is either a joke or a mistake. Why build new ones, when Ukraine already has pipelines on its territory? And that is considering that a few days ago, Yanukovich threatened to liquidate transit pipelines if Russia’s gas supplies to Europe were reduced, according to the general director of East European Gas Analysis, Mikhail Korchemkin.

“There are three main export gas pipelines: Urengoy-Uzhgorod, Yamburg-Western Border, and Orenburg-Western Border,” Korchemkin said. “Ukraine will be able to obtain gas for itself through a number of other pipelines. If gas is not flowing through them, it is more profitable to sell them for scrap.”

Everything points to the fact that the European Union, which Ukraine is striving to become a part of, has strictly prohibited turning off gas. Hence the sharp change of rhetoric, says the head of the National Energy Security Fund, Konstantin Simonov.

“It was hardly a joke, and more like a gesture of despair,” said Simonov. “Viktor Yanukovich was building his strategy based on the assumption that he could scare Moscow. He first threatened to sue Yulia Timoshenko, and then reorganize Naftogaz. In terms of common sense, the latest proposal is also absurd. South Stream is being constructed for the very reason that it has been impossible to obtain reasonable assurances of reliability of gas supplies through Ukraine. It would be better to make a serious offer. For example: To create a trilateral consortium of Ukraine, Russia and the European Union that would manage Ukraine’s gas transit system.”

The South Stream pipeline is expected to run across the bottom of the Black Sea from the Krasnodar Krai shoreline to Bulgaria, and perhaps Romania, and then Serbia, Hungary, Greece, Slovenia, Croatia, Austria and Italy. The length of the Black Sea sector will total about 900 kilometers, with as maximum depth of more than 2 kilometers. The pipeline will run over another 1,600-2,500 kilometers on land. The pipeline’s estimated capacity is 63 billion cubic meters of gas. Construction will cost 15.5 billion euros. South Stream will transport a portion of the gas supplies which currently travel to Europe through Ukraine.

By Pavel Arabov

RT, September 20, 2011