Archive for June 12th, 2018


Ukrainian TANAP pipeline support

June 12, 2018

Every so often, and fairly frequently of late, the subject of Nord Stream II, (NSII, NS2, – however a reader may label it) and the Ukrainian GTS appears here.

The blog has long held the position that it is perhaps in the Ukrainian economic and national security interest to seek to swiftly and thoroughly integrate into the European gas network in order to be able to import as much EU gas market supply as possible – and after fulfilling the Stockholm Arbitration Court judgement returning to a policy position of not buying Russian gas (directly), while politically accepting that any Russian transit fees across its territory are transactional incomes around which no national budget nor oligarchical interests can continue to be built (as historically was once the case).

Bi-directional pipelines and interconnectors with the EU would seem the prudent path for the future, and is perhaps where transit fees revenues should be targeted to finance that goal.

After all, the EU gas marketplace is not simply the resale of Russian gas.  There are numerous other importing and domestic EU market participants whose pricing Gazprom is compelled to take into account.  If it proves cheaper to buy imported gas from those other than Gazprom, the nature of the EU market is to buy there first, and as such Gazprom will be concerned about market share (and by extension for The Kremlin regarding associated political leverage).  Price approximation therefore follows, because regardless of how many pipelines that may be built, demand has to be at one end of the tube, regardless of the supply at the other end.  Ergo, “take or pay” contracts or not, a wary Gazprom eye upon the EU gas spot market there must therefore be.

However this entry relates to a new gas pipeline that circumvents Ukraine and will supply Turkey and Europe.

It is a pipeline that Ukraine supports.

The pipeline in question is the TANAP pipeline.  The 1,850 km long TANAP gas pipeline is designed to transport Azerbaijani gas from the Shah Deniz field to the western borders of Turkey.

The initial capacity will be at least 16 billion cubic meters, of which 10 billion will be sent to Europe, and 6 billion cubic meters will go to the western regions of Turkey.  The future capacity of the pipeline will be brought to 24 billion cubic meters of gas per year, and ultimately to 31 billion cubic meters.

That gas to enter Europe via Bulgaria and Romania.

Clearly there are good reasons for Ukraine to support this pipeline – which is why it does.

Firstly it is not Russian gas that it transports to Europe, therefore further diversifying and diluting supply to Europe.  Good for European market drivers and good for a Ukraine that will buy its gas from Europe.

Secondly, while the opening ceremony of TANAP took place in the Turkish city of Eskisehir with the participation of the Presidents of Turkey and Azerbaijan very recently, the pipelines to and through Romania and Bulgaria are not completed.  Project “upstreaming” can possibly still take into account any spurs into Ukraine.   If Ukraine has the sense to swiftly and deeply integrate into the European gas infrastructure, TANAP is another energy source devoid of anything directly Russian.

So it is perhaps not surprisingly that (apparently) also present at the opening ceremony was President Poroshenko, who had a few words to say “Ukraine fully supports this project.  Today we agreed that we will be more than happy to diversify our energy sources and get gas supplies from TANAP through Bulgaria and Romania.”

Clearly it is also beneficial for Ukraine to keep good relations with Turkey, Romania an Bulgaria.  These are important immediate neighbours.  There will always be issues of disagreement, or irksome issues, but generally they can or are compartmentalised so that broader good relations remain fairly robust.  Supporting this project adds to regional “goodwill”.

Quite who and how (new or even overhauled) gas transport infrastructure will be financed if Ukraine intends (as it should) to create a spur into Ukraine remains to be seen.  Nevertheless, there is always money to be found for sensible projects, and the deepening and further integration of Ukraine into the European gas infrastructure is most certainly a sensible idea.

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