Will the new pipeline create a new dependence for Ukraine?

Ukraine and Poland have signed an agreement to expand the two nations’ pipeline systems. President of the Ukrainian gas transmission system operator JSC Ukrtranshaz Ihor Prokopiv and chairman of the executive board of Poland’s Gaz-System S.A. Jan Chadam have signed off on the document in Warsaw. The agreement means integrating gas transmission systems of both countries in order to increase gas imports from Europe through Ukraine to Poland, as well as making Ukraine’s underground gas storage facilities available for use by European gas market operators and supplying gas from them to consumers in the EU.

“This event has opened new avenues for the development of the national gas transmission system and its integration into the European gas market. We sincerely thank our Polish colleagues for constructive cooperation,” Prokopiv summed up in Warsaw.

What will be built, and how? The principal expansion option in Ukraine is construction of the main gas interconnector Drozdovychi-Bilche-Volytsia, which will be 110    kilometers long and have capacity of transmitting eight billion cubic meters of gas per year from Poland to Ukraine and seven billion cubic meters per year from Ukraine to Poland. The estimated cost of construction of the main gas interconnector in Ukraine is 245 million dollars.

COMMENTARIES

Dmytro MARUNYCH, co-chair of the Energy Strategies Fund of Ukraine:

“The idea of building a new pipeline with transmission capacity of seven to eight billion cubic meters was discussed before. What benefits will it bring? Firstly, it will theoretically open new avenues for handling liquefied gas. Secondly, it will expand energy supplies to Ukraine, in this case from the German NCG hub. That hub is the nearest one because is located in the east of Germany. It stores gas from Norway, Russia, and other countries. Therefore, it will be a way of strengthening energy security of Ukraine.

“Poland will be able to earn money from transit, because there will be transit fees charged, but it is mostly theoretical for now, as we do not know at the moment how quickly the project will be implemented. Such construction projects take a few years to complete, and their success depends on having a consortium of investors lined up for the construction and speedy decision-making at all stages, such as feasibility study and licensing procedures. Participation in the project may be of interest to European companies who build similar pipelines and then operate them. However, they need encouraging to come, for gas consumption in Ukraine is falling, and the market is shrinking. It was a reason behind Chevron’s decision to leave Ukraine, and our chances to see new market players are slim until the economic situation in the country stabilizes.”

Bohdan SOKOLOVSKY, former presidential energy security commissioner of Ukraine under Viktor Yushchenko:

“This pipeline cannot bring radical changes to our current energy supply situation, because its construction will take, under most favorable conditions, two to three years at least, through which time we still need to survive as a country. More generally, though, the agreement is a useful step for the future. Until this project is completed, the main energy reserve of Ukraine is saving, cost reduction, and complete stoppage of Russian gas imports. What prompted the Poles to accommodate Ukraine on the gas issue? The economic benefits of this project are minimal for them, but the political benefits are another matter... Poland will get more political leverage over Ukraine.”