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The Fear Factor Is Back For Oil

The Fear Factor Is Back For Oil

While fundamentals suggest lower oil…

Russian Gas Transit Via Ukraine Set For Major Slump

Pipeline

Transit of Russian natural gas via Ukraine will be reduced to just about 10-12 billion cubic meters annually after the completion of two new pipelines—Turkish Stream and Nord Stream 2. That’s what Gazprom’s chief executive Alexei Miller told a Russian TV channel yesterday, confirming Kiev’s fears that Nord Stream 2 will deprive it of a lot of income in the form of transit fees.

The significance of the new figure can easily be seen when compared with the transit quantities for last month: Gazprom sent 8.1 billion cubic meters of gas via Russia’s eastern neighbor in March, a 21.3-percent increase on the year. In other words, when Turkish Stream and Nord Stream 2 are ready, Ukraine will receive something like a 12th of its current annual gas transit revenues from Gazprom.

This is reason enough for Kiev to be so vocally against Nord Steam 2, but unfortunately for Ukraine, Germany is just as vocally supportive of the project, of which it will be the biggest beneficiary. The expanded Nord Stream pipeline will have a capacity of 110 billion cubic meters annually.

Still, Miller said, not all transit via Ukraine will be suspended. "We are not saying we will stop entire transit via Ukraine, since there are neighboring countries that border Ukraine on the side of Europe. Naturally, supplies to these European countries will continue via Ukraine."

While the news is bad for Ukraine, it makes sense for Russia as European countries eagerly seek alternatives to Russian gas, including the “neighboring countries that border Ukraine,” notably Poland. Yet Germany is by far Gazprom’s biggest client in Europe and Russian gas is the cheapest for Europe’s largest economy, hence the support for a project seen as controversial by the European Commission.

Turkish Stream, for its part, will send Russian gas to the European part of Turkey up to the border with Greece, to supply gas to southeastern Europe. Its capacity is much smaller than Nord Stream’s, but still larger than the future transit via Ukraine, at 15.75 billion cubic meters of gas.

By Irina Slav for Oilprice.com

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