What will happen to the Ukrainian gas transportation system if the transit of Russian gas stops?

Naftogaz will not renew the contract for transporting Russian gas to Europe after it ends at the end of 2024, the head of the Ukrainian company Alexey Chernyshov said in an interview with Radio Liberty.

Previously, this was a nightmare for Ukrainian officials, but now it is a pragmatic solution. But does this mean that the transit of Russian gas to Europe through Ukraine will stop altogether?

What will be in Ukrainian pipes instead of Russian gas? And what will happen to the gas transportation system itself? The answer to these questions was sought in the publication of the Air Force Ukraine.

Battlefield of the first "wars" with Russia

Built during the Soviet Union, the Ukrainian part of the gas transportation system was designed to export huge volumes of gas to Europe.

At the entrance - the eastern border of Ukraine - it could receive more than 280 billion cubic meters of gas. At the exit - the western border - this system could ensure the export of almost 150 billion cubic meters. This is three times more than the designed capacity of both Nord Stream branches combined. And five times more than the capacity of both branches of the Turkish Stream.

But after the collapse of the USSR, disputes about prices and debts continued between Ukraine and Russia, and turning off the gas valve was constantly a significant lever of Russian influence on Ukrainian politics.

The latest example is the Kharkov agreements, under which Ukraine, under President Yanukovych, received a discount on gas from Russia in exchange for extending the basing of the Russian fleet in Crimea.

At the same time, Russia consistently built pipelines bypassing Ukraine - both in the south through the Black Sea (Turkish Stream) and in the north through the Baltic Sea (Nord Stream).

Transit through Ukraine has been constantly declining, but has not stopped. And then, when Ukraine completely abandoned gas imports from Russia in November 2016, and even with the beginning of the Russian invasion in February 2022.

The current contract for the transportation of Russian gas to Europe was signed by Gazprom and Naftogaz at the end of 2019. It was designed for 5 years and was supposed to bring Ukraine about $7 billion in revenue. In 2022, the first year of the war, Ukraine received about $1.2 billion for transit. For the first half of 2023 - about $700 million.

However, as the head of Naftogaz says, Gazprom is underpaying under the contract, which clearly states: “pump or pay.” According to Alexey Chernyshev, Ukraine will now receive “no more than 70%” of the contract amount.

Gazprom does not want to pay for gas that enters through the checkpoint in Sokhranivtsi. The Ukrainian gas transportation system operator disconnected it from transit due to the fact that after the Russians occupied this territory, the Ukrainian side does not control the gas measuring station there. These underpayments are the subject of another arbitration against Gazprom.

The second entrance to the Ukrainian gas transportation system, in Sudzha, is operational. This is one of the two pipeline routes left for the Russians to deliver their gas to Europe. Nord Stream 2 never started working, and the first branch of Nord Stream, the branch through Belarus and one of the two branches of Turkish Stream stopped working.

Despite the fact that during the war in Ukraine, Europe has radically reduced gas imports from Russia, especially those coming through pipelines - by 7 times, according to estimates by the International Energy Agency - there are still countries in the EU that buy Russian gas.

Slovakia, Austria, Hungary - landlocked countries - buy gas that goes through Ukraine. As they themselves say, it is more difficult for them to rely on liquefied gas supplied to Europe through LNG marine terminals.

It is out of solidarity with these countries, says the head of Naftogaz, that Ukraine continues to fulfill its contractual obligations and continues to transport Russian gas, despite Russian aggression.

But what happens when the transportation contract ends?

What will happen to transit?

This question is more for the EU and, in particular, for countries that still buy Russian gas transited by Ukraine, says Elena Pavlenko, head of the Dixi Group analytical center.

She recalls that the REPower EU program approved by the EU provides for a reduction in the consumption of fossil fuels, and above all, Russian gas supplied through pipelines. If it continues to be implemented at the same pace as now, then “there are chances that at the end of 2024 there will be no need to renegotiate the contract with anyone.”

If, next year, EU countries that still buy Russian gas say they cannot do without it, it is theoretically possible that they will enter into agreements directly with Gazprom. Ukraine will not be a party to these agreements, and European companies will order the capacity of the Ukrainian gas transportation system, suggests Elena Pavlenko. At the same time, she adds, it is obvious that these will be some short-term contracts, and the gas receiving point will move to the eastern border of Ukraine.

Actually, this should have been the case back in 2019, but then the EU did not dare to take such a step, maintaining a hybrid form in which the old relationship between Naftogaz and Gazprom remained, says Mikhail Gonchar, head of the Center for Global Studies “Strategy XXI” .

Now life itself may force a transition to the model that Ukraine has been insisting on for some time: Gazprom’s European partner would buy gas on the eastern border of Ukraine. And Ukraine would have a contract only with a European client.

“That is, there would simply be no relationship with Gazprom - they would not be needed,” explains the energy security expert.

At the same time, Mikhail Gonchar notes, it is important to distinguish the termination of the transit contract at the end of 2024 from the termination of transit by Ukraine, as they are trying to present this news in Russia. He recalls: reducing transit through Ukraine has always been Russia’s initiative.

The expert suggests that Russia itself is preparing to stop gas supplies to Europe, at least through the territory of Ukraine. But, adds Mikhail Gonchar, this will happen in the manner typical of Russians - not directly, but as in 2006, 2009, in order to make Ukraine guilty.

The old story about shutting off the valve in a new way

The expert says that the Russians have been preparing this scenario of “punishing Europe” since the winter of 2021-22. But frost is needed for maximum effect.

“They are waiting for some abnormal cold weather, when Europe will feel bad, there will be a shortage of gas, and then the gas valve in the direction of Ukraine will be closed, where only one line through Sudzha remains operational,” the expert predicts. “Their goal is to create problems in the European gas market in conditions of temporary shortages, and make Ukraine guilty of this.”

If events develop in this way, then there will be no restoration of the transit of Russian gas through the territory of Ukraine. And the Ukrainian gas transportation infrastructure may be subject to targeted Russian attacks, which it avoided while gas was flowing through Ukrainian pipes to Europe. However, the gas infrastructure is less vulnerable to missile attacks than the electric power industry, because most of the pipes are underground, and the depth of the underground storage facilities is about one and a half kilometers.

This scenario, notes Mikhail Gonchar, is supported by the increased interest of Russians in satellite images of the territories where gas infrastructure facilities are located. Ukraine has been recording such interest since June, the expert says.

Big hopes

In the same interview with Radio Liberty, the head of Naftogaz said that there are big plans for the Ukrainian gas transportation system. They are associated with large gas reserves - they say that if, given the current lower consumption (due to the destruction of many industrial enterprises), it is possible to increase production, then the excess can be sold abroad. Alexey Chernyshov even suggested that over time Ukraine could become a “net exporter” of gas.

But how realistic are such plans, even if they concern life “after the war”?

The wishes voiced by the head of Naftogaz, suggests Mikhail Gonchar, are based on pre-war assessments of Ukraine’s potential - before the annexation of Crimea.

He recalls that in 2012, a group of American specialists under the auspices of the US Department of Energy conducted a study of the potential for gas production in Ukraine. They took into account deposits on the Crimean shelf, Yuzovsky and Olessky areas. According to their estimates, by 2030 the volume of Ukrainian gas production could reach up to 73 billion cubic meters, despite the fact that Ukraine currently produces up to 20 billion cubic meters.

This could be one of the factors in the Russian annexation of Crimea, the expert suggests. And in support of his thoughts, he cites data on how gas production on the Black Sea shelf was increased by only two “Boiko towers” ​​- several times over several years.

All these projects can be resumed. But there is one condition. “Russia must be thrown out of Crimea, not only the peninsula must be deoccupied, but also the sea area belonging to Ukraine between Crimea and the Odessa region,” says Mikhail Gonchar, and adds that the same applies to projects in eastern Ukraine - in Donetsk and Kharkov regions.

In addition, one more factor is needed - demand at the other end of the pipe.

From blue to green

If you look at the statistics, gas consumption in the EU as a whole has not decreased much, says Elena Pavlenko. The consumption of Russian pipeline gas has decreased dramatically, but due to the fact that Europeans have refocused on Qatar, Nigeria, and the USA.

“They managed to replace Russian gas with gas of other origins, but I still don’t see that they are going to radically abandon gas in the coming years,” says the head of Dixi Group.

Mikhail Gonchar also agrees that the gas era in the EU is far from over.

“Even now we say that the coal era is over, but coal stations are still operating,” the expert notes. And when you consider the EU's climate and green goals, gas is the cleanest of all fossil fuels.

And here another joker can play on the side of Ukraine - biomethane. This is practically the same gas extracted from the subsoil. The prefix bio only indicates its origin - from animal or crop waste, explains Mikhail Gonchar. Yes, it must be specially prepared for launching on the network, but technologically this is quite possible.

Moreover, there are already successful projects related to biomethane in Ukraine.

Biomethane fits well into the EU's green transition concept, and if its biological origin is confirmed by appropriate certificates, the EU may be very interested in importing it. But there is one thing here too. This direction is very viable, but its development requires changes, time and money, says Elena Pavlenko.

Firstly, she says, the production of biomethane, which already exists in Ukraine, needs to be scaled up - and quickly. And this requires changes in government regulations both to support this production and to support exports. According to her, both NEURC and the GTS operator are already working on this.

Secondly, someone must finance this and support the Ukrainian business that is trying to work in this direction.

“If the EU is ready to at least partially finance this, if European companies are ready to enter and have some kind of joint business, then this is promising,” says the expert.

However, all this is speculation for the future. What if the Ukrainian gas transportation system does not work either for transit or for export?

For scrap metal?

Even in this case, “not everything is lost,” says Mikhail Gonchar. Ukraine produces up to 20 billion cubic meters of gas, which is enough to cover domestic needs. And an extremely extensive system, which can work in both directions, will deliver this gas to consumers, although there are also fewer of them. Of course, a system designed to move 200 billion cubic meters will not work the same when transporting ten times smaller volumes. We will have to raise tariffs, optimize work and mothball certain facilities, says Elena Pavlenko.

But here too it’s worth considering all the options and trying to turn the minuses into pluses. For example, gas pumping stations, unnecessary in the absence of transit, can be used in the electric power industry instead of the shunting capacities of coal-fired thermal power plants destroyed by Russia.

“If these gas compressor stations are equipped with generators, they will become energy producers,” says Mikhail Gonchar.

Gas storage services can also help, because for Ukrainian needs only half of the volume of storage facilities that Ukraine has is needed. The rest can be used by other countries.

And if underground storage facilities are again combined with the pipeline system, with which they are one technological complex (and were disconnected only recently during the unbundling of Naftogaz), then the GTS operator will have additional opportunities to earn money from gas storage. Then transportation tariffs can be raised less sharply, suggests Mikhail Gonchar.

And the fact that this is quite possible and in demand was proven not only by the last pre-war years, when the demand for the services of Ukrainian gas storage facilities increased, but also by the fact that even during the war, some foreign companies store gas in Ukrainian storage facilities - more than 2 billion cubic meters per year. as of now.