The current contract between Naftogaz and Gazprom for the transit of Russian gas through the gas transportation system of Ukraine expires on January 1, 2025. Should it be continued or terminated, giving up the benefits and inconveniences associated with this forced cooperation?
The ex-head of the Gas Transport System Operator of Ukraine, Serhiy Makogon, has a clear position regarding the termination of gas transit through the Ukrainian GTS despite the fact that his point of view does not coincide with the position of the domestic establishment.
The arguments of government officials for the continuation of gas transit through the Ukrainian GTS, expressed by the Chairman of the Board of Naftogaz of Ukraine Oleksiy Chernyshov, are as follows. They say we need to financially ensure the work of the GTS. In addition, it is desirable for Ukraine to preserve the transit capacity of the GTS in order to remain a player on the energy map of Europe.
Serhii Makogon convincingly proves that the contract should not be extended either with the Russian Gazprom, or with the Azerbaijani SOCAR or another counterparty. Because in fact, Ukraine will continue to pump Russian gas, no matter who formally owns it, and Ukraine will unwittingly contribute to the fact that the aggressor country receives a considerable resource that will help it continue its aggression against Ukraine.
Even to stand still, you have to run fast
Last year, the GTS Operator received about $800 million for gas transit. But OGTSU uses most of these funds for the transit itself – the purchase of fuel gas, maintenance of compressor stations, repair and maintenance of the GTS at the level required for transit.
After expenses for self-sufficiency of OGTSU, the budget reaches less than $300 million. Because the transit tariff is designed to ensure transportation and does not provide for excess profits. At the same time, Gazprom receives about $5 billion from the sale of gas pumped by the Ukrainian GTS. The disparity in profits is obvious.
How much does it cost to maintain the GTS with zero transit?
To get an idea of the cost of maintaining the gas transportation system, it is worth considering that the GTS is approximately 30,000 km of pipes and 74 compressor stations. 30 of them – almost half – have not been used for 15-20 years. It was planned to write off 35 stations.
If there is zero or minimal transit, the system will be sufficient for up to 10-12 stations out of the 74 currently supported. Regardless of the loading of compressor stations, they must be serviced by technical personnel. And this is a considerable staff – 11,000 people.
Having dared to close several compressor stations, OGTSU risks facing the prosecutor’s office, which will be able to incriminate it for careless treatment of state property, because the pipes are the property of the state represented by the Ministry of Energy. OGTSU is an operator obliged to maintain this infrastructure. On the eve of the war, draft law No. 6133 was initiated, which provided for the simplification of the procedure for decommissioning some equipment, but it has not yet been adopted.
How much will gas become more expensive for Ukrainians if transit stops?
It is known that funds for transit partially compensate for the expenses of OGTSU for providing gas to Ukrainian consumers. Currently, gas transportation in the internal system costs about UAH 0.2 per cubic meter. In the case of zero transit, this cost will increase to no more than UAH 0.6 per cubic meter.
When the market price of gas for commercial consumers in Ukraine is 12 hryvnias per cubic meter, its increase by 40 kopecks will be insignificant. Especially against the background of the recent increase in the price of electricity by 60%. But, of course, the GTS should be optimized as soon as possible, so as not to transfer the entire cost of maintaining the undemanded capacity of the GTS to the population.
The throughput capacity of the GTS is 145 billion cubic meters per year. Today, only 10th of this capacity is being exploited – 14 billion cubic meters per year. And no optimization of OGTSU has taken place yet. Even Serhii Makogon, who managed the company for three years, states that he was unable to close any compressor or gas distribution station.
According to the classics, bureaucratic routine became an obstacle. Yes, there is a lot of confusion in the Procedure for decommissioning main pipelines. Among other things, a permit is required from the State Atomic Energy Regulatory Authority, which has nothing to do with GTS, public hearings and many different certificates are also required.
The vision of the tour guide of OGTSU regarding its possible optimization
Therefore, under the conditions of optimization of the GTS, prices for domestic transportation will increase uncritically. Serhiy Makogon has such a vision of the possible transformation of OGTSU. First of all, I started to repurpose. Gas generation can be installed at unnecessary compressor stations. There is everything you need: gas, a line for supplying electric power, a free site. Secondly, make optimization – close unnecessary CS. And thirdly, to modernize those 10-12 stations that will work. These machines were built half a century ago and their maintenance often requires Russian spare parts. Today, the situation is saved by the fact that the GTS works thanks to donor compressors that are disassembled for spare parts.
In general, it is worth thinking about the question of whether it is necessary to preserve the capacity of the GTS at all costs, if very soon the technologies of using carbon will be overboard of history? Soon the world will abandon hydrocarbons, the abandonment of Russian gas is planned from 2027. The transition to renewable energy sources is already happening today.
In addition, the Yamal-Europe gas pipelines and both Nord Streams have already been built and are not in use. If the government in the Russian Federation changes and Ukraine is ready for peaceful cooperation regarding gas transit, no one will use all the capacity of Ukraine’s GTS anyway.
Will the suspension of transit be critical for Moldova, Austria and Slovakia, which receive Russian gas through the GTS?
As for Moldova, the Right Bank of the Dniester receives gas from Europe. Currently, only the unrecognized Transnistrian Moldavian Republic is on the Russian “gas needle”. An alternative for it – under the conditions of advance reservation of capacity – could be receiving Russian gas through Turkey, Romania and Ukraine at the end of the route.
Gas is not supplied to Hungary directly from Ukraine. The country receives the main volume of Russian gas through Turkish Stream. As a final principle, it buys gas transiting through the Ukrainian HTS from Slovakia.
Austria and Slovakia did not emphasize that they wanted to maintain transit through Ukraine. Starting in 2020, both countries planned to transit gas through the Nord Stream – through Germany, from which additional gas pipelines were built. Therefore, they have the technical capabilities to reorient to other sources.
In Austria, the problem is of a different kind. The country concluded an agreement with Gazprom, according to which the Austrians will buy Russian gas until 2040. That is, Gazprom undertook to supply it, and Austrian companies – to buy it.
At what prices do Slovak or Hungarian companies buy gas?
Serhiy Makogon comments that the pricing policy for these pro-Russian countries is unknown. “This is a commercial secret. The supply of gas from the Russian Federation has always been an element of politics. How many kickbacks the Russians give to lobby pro-Russian politicians in these countries, we can only guess. This is outright political corruption. We see that these two countries are shaking European unity with the Kremlin’s money.”
Despite the fact that both countries are NATO members, they send Russia more than $10 billion a year and at the same time expect that NATO will protect them from an aggressor country in the event of an attack by the latter.
President Aliyev of Azerbaijan announced plans to deliver 13 billion cubic meters of gas to the EU via Turkey this year, and also declared readiness to transit gas to Europe via Ukraine. I wonder how much truth there is in this intention? After all, it makes no sense for Aliyev to supply his own gas to Europe through Russia and Ukraine. The only meaning of such a scheme is to replace it with the same Russian gas under the guise of Azerbaijani gas.
To the question of whether Brussels supports the continuation of the transit of Russian gas through Ukraine, Serhiy Makogon answered: “I was in Brussels a month ago… Tried to find out who from the European Commission supports this project? I can say that there is not a single person in the EC who would deal with this issue. They say: this is manipulation.”
Tatyana Morarash
