ISSN 2330-717X

Russia, Ukraine Arm-Wrestling Over Pipelines


In a sign of mounting Russian pressure on Ukraine to share its pipeline network, Gazprom’s chief executive has warned that procrastination in talks would result in a bad deal for Kyiv as construction of a competing pipeline would lead to a price slump.

The value of the Ukrainian gas transportation system could drop significantly in the near future, Gazprom’s Alexei Miller was quoted as saying by the Russian and Ukrainian press. He added that it would be “twice as cheap” to transport gas to Europe via the planned South Stream pipeline.

Miller’s remarks on on Saturday (30 December) should be seen in the context of his meeting with Prime Minister Vladimir Putin, held on the same day. The Russian government’s website conspicuously published a transcript of the meeting.

At the beginning of the meeting, Putin enquired about the status of South Steam, the Gazprom project designed to transport Russian gas to the Baumgarten pipeline hub in northern Austria. South Stream is also seen as a political project, intended to weaken Nabucco, the EU-favoured project to supply Baumgarten from sources other than Russia (see background).

Turkey clears offshore section

Miller reported that Turkey had agreed to laying the South Stream pipes through its Black Sea economic zone.

“We hope to complete all project and design work on the Black Sea shelf before the end of 2012. We are planning to start building the marine section in early 2013, that is, in a little more than a year, and to complete it in December 2015. We hope to supply the first commercial gas to Europe in late 2015,” Miller is quoted as saying.

Putin replied: “I think it would be better to start next year, at the end of next year. It’s not such a big difference, but it would still be better to start in 2012.”

“OK, Mr Putin’

Miller answered: “OK, Mr Putin, that’s what we’ll do.”

Putin and Miller also discussed the cost of South Stream, which the Gazprom chief estimated at “a little over €15 billion”, of which the Russian state monopoly would pay half.

“The financial burden is distributed between the partners in proportion to their shares in the project: 50% belongs to Gazprom, 20% to Eni and the rest to Électricité de France and the Germans. Under the plan, 30% will be paid by our shareholders and 70% will come from credit financing,” Miller said.

Eni is an Italian oil and natural gas company, and the German petroleum company Wintershall Holding is another partner in the project.

Putin and Miller discussed the demands of Ukraine for a reduced gas price. On 20 December, Putin and his Ukrainian counterpart Mykola Azarov failed to achieve a breakthrough in talks in which Russia links the issue of price reduction to a stake in Ukraine’s gas pipeline network.

According to Miller, Kyiv estimates the price of the Soviet-era gas pipeline network across the country at $20 billion (€15.4 billion). But he added that it remains unclear how much the modernisation would cost, citing sums between $3 billion to $8 billion. He said that Kyiv asked for a gas price discount of $9 billion (€6.91billion) a year.

Meanwhile, Kemal Kılıçdaroğlu, leader of Turkey’s main opposition Republican People’s Party, criticised the Turkish government’s decision to approve the offshore section of South Steam in the Black Sea economic zone.

“With the South Stream deal, Turkey has given up its ambition of becoming a hub for natural gas supplies to Europe. “Now it will just pass through our waters, linking up with Bulgaria,” he said.

Original article

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