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Ukrainian gas transportation system law economically feasible - experts

September 09, 2014, 2:38 UTC+3 MOSCOW

Experts said that the adoption of the law and its signing by the president were a step towards gas market reform using the European model

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MOSCOW, September 08, /ITAR-TASS/. The gas transportation system reform law, although politically motivated, is economically feasible and will help to attract investment for the modernisation of the gas transit network, experts told ITAR-TASS on Monday.

“The idea to bring Europeans into the operation of the Ukrainian gas transportation system first emerged ten years ago, but the talks have produced no results so far. The pipeline and the booster stations were built some 30 years ago and need an overhaul badly. This will cost several billion U.S. dollars, which Ukraine doesn’t have,” Gennady Shmal, the President of the Russian Union of Oil and Gas Industrialists, told ITAR-TASS.

He said Europeans had repeatedly stated their readiness to provide funding for the gas system modernisation if they had a say in managing it.

But before this happens, Ukraine will need to solve a number of legal issues, experts in the Russian Gas Society said.

As a member of the European Energy Community, Ukraine has to comply with the European Union’s Third Energy Package, which requires it to separate enterprises that transport gas from enterprises that store it.

Experts said that the adoption of the law and its signing by the president were a step towards gas market reform using the European model.

The system is currently operated by Kiev. The government-owned company Naftogaz of Ukraine is planning to begin official negotiations with potential bidders shortly.

ITAR-TASS’ sources said interested companies “have many questions, both technical and financial”, and the situation may develop further within a month after the completion of all legal procedures required for enacting a gas transportation law which has yet to be adopted by the Ukrainian parliament.

On August 14, the Ukrainian parliament approved amendments to the gas transportation system reform law, under which control over the system will be transferred to an operating company that can be controlled by the European Union, the United States or the European Energy Community.

In June, Ukraine asked the European Union and the United States to help to upgrade its gas transportation system and then operate it. Kiev put the cost of the project at 3-5.3 billion U.S. dollars, which it said would secure gas transit to Europe in the amount of 145 billion cubic metres a year until 2030.

But Gazprom experts say that the modernisation of the Ukrainian gas transportation system can eventually cost 16 billion U.S. dollars.

Ukrainian Prime Minister Arseny Yatsenyuk also promised to seek the assistance of American and European partners in order to modernise the Ukrainian gas transportation system.

He said this would “allow us to invite our European and American partners to operate and modernise the Ukrainian gas transportation system, with the Ukrainian state retaining control over the system”.

However some deputies spoke against the transfer of the ownership rights to the gas transportation system to private companies and insisted that it be owned solely by the state.

Energy and Coal Industry Minister Yuri Prodan said that “only the state alone or the state (with no less than 51% of corporate rights) and an enterprise owned and controlled by residents of EU countries, the United States or the European Energy Community can establish and own the entity to act as the operator of underground gas storage facilities”.

The throughput capacity of the Ukrainian gas transportation is 288 billion cubic metres system at the entrance and 178.5 billion cubic meters at the exit, including 142.5 billion cubic metres to European countries and 3.5 billion cubic metres to Moldova. Natural gas transit through Ukraine to Europe and CIS countries in 2011 increased by 5.7% from 2010 to 104,197,067,000 cubic metres, including to Western Europe by 5.9% to 101,098,013,000 cubic metres, but decreased by 2.4% to 3,099,054,000 cubic metres to CIS countries.

Ukraine’s gas transportation system consists of 72 compressor stations, 110 production facilities and 1,451 gas distribution stations. The overall length of gas pipelines operated by the company is 38,600 kilometres, including 22,200 kilometres of trunk pipelines and 16,400 kilometres of extensions.

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