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Ukraine Offer To Share Pipeline Threatens Russia’s Plan For Alternative Conduit

Ukraine Offer To Share Pipeline Threatens Russia’s Plan For Alternative Conduit

A decision by Ukraine’s parliament to allow European and U.S. companies to lease shares of the pipeline that carries Russian gas to the West could derail Russian President Vladimir Putin’s plan for an alternative pipeline that bypasses Ukraine.

The Verkhovna Rada voted Aug. 14 to allow the country’s gas pipeline and underground storage facilities to be leased as a joint venture, offering 49 percent to U.S. and European companies, with Ukraine retaining 51 percent control.

The move would give Ukraine more leverage with its much larger neighbor, which it accuses of fomenting violence by pro-Russian separatists on its territory.

At the same time, Kiev needs to keep earning the revenues from reliably supplying Russian gas to Europe, which gets about a third of its gas supplies from Russia’s state-owned Gazprom, half of which passes through Ukraine.

The government of Prime Minister Arseny Yatseniuk argues that the joint venture would generate revenue for Ukraine from investment by foreign countries, and eliminate the need for Russia’s proposed South Stream pipeline.

South Stream, a project begun by Gazprom, would ship gas to Europe across the Black Sea, bypassing Ukraine altogether and denying it the transit fees it now earns. Already, Ukraine has lost some of those fees due to an existing alternate route for Russian gas, the Nord Stream pipeline, which reaches Europe through the Baltic Sea.

Ukraine’s parliament also voted to permit the government to impose sanctions against 172 individuals and 65 companies and similar entities in Russia and other countries for supporting “terrorism” in Ukraine. The targets’ identities, however, have been withheld until the measure is signed by President Petro Poroshenko.

Ukrainian sanctions are further bad news for South Stream, which is expected to cost $46 billion by the time it is completed, if it ever is. Work on the project has been suspended over Russia’s role in Ukraine's unrest and is likely to remain so until Moscow ends its support for the Ukrainian separatists.

So for now, Russia has no choice but to rely on Ukraine to supply its customers in Western Europe, according to an analysis by the Eurasia Group, a New York-based risk research center. The EU, once undecided over the value of South Stream because of its dependence on Russian gas, is now united in opposition to Moscow.

“There’s no way Europe is going to put South Stream negotiations back on the table now, given the larger geopolitical context of the Ukraine crisis,” Emily Stromquist, a Eurasia analyst in London, told Bloomberg News. “That, combined with a number of regulatory disputes about the pipeline and gas deliveries, will push back the timeline [for South Stream] a number of years.”

By Andy Tully of Oilprice.com

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  • Andrey Palyura on August 18 2014 said:
    Ukraine pipeline needs huge investments on modernization and repair. But Ukraine does not have funds and is not sure about future transit volume. Moreover Ukraine is not going sell it, it still wants to own and to control, not to invest. So it is just going to sell 49 % for cash - to cover budget deficit, to free itself on repair spending, and not to bother about transit volumes, to collect transit fee and on other side still wants to be the owner! Fantastic scheme. Ukraine values pipeline at 25-35 blns USD, so they want about USD 15 blns for such a trick. I think it would be a problem to find such generous and risky investor who is not afraid of constant Ukrainian turmoils and changes in political direction and with reach history of re-privatization.
  • Nathaly Payne on August 18 2014 said:
    Of course... Ukraine its allies should simply accept the fact that Russia has been charging for years gas more expensive than countries like Germany! Despite the fact that Ukrainans were partners, "brothers" and a former SS state...

    We see an absurd amount of Russian propaganda comenting how everyone else is the bad guy, just look at the facts:

    In 1991, to allegedly protect Transnitrians, Russia helped creat the unrecognized state of Transnitria - Result, poverty, unemployment, fleeing youth, commercial limbo and a bunch of Russian military there.

    In Abkhazia, South Ossetia and more recently in Crimea the same has happened. How are they doing? Well, Crimea is receiving waves of billions of investment from Russia and forced Russian tourists to try and ease their minds around the fact that they are from now on totally isolated including from their own Ukrainian brothers. The only thing awaiting these small renegade Russian states and region, falling into oblivion for the will of Mother Russia...

    What state did ever grow socialy, economicaly from under the wing of Russia... Certainly not Ukraine that was dragged in a political and economical puppet show until it collapsed in revolutionaries' blood.

    Russia, we praise you for your great feats for the world peace, for the great culture you transmit, for your development in every field, for your respect for human rights and mostly... For your egoism and selfishness.
  • Allan on August 18 2014 said:
    Russia should just cut the gas and let the chips fall where they may. All this threatening is counter productive. If EU don't want Russia gas, let them go to hell and buy the more expensive gas from the USA. Cold winter though !
  • Dorothy on August 17 2014 said:
    "There’s no way Europe is going to put South Stream negotiations back on the table now, given the larger geopolitical context of the Ukraine crisis"

    Especially given the larger geopolitical context of the Ukraine crisis Ms. Stormquist's suggestion that Russia would again surrender to Ukrainian blackmail and supply Ukraine with cut price gas just to ensure transit to the Central European gas market seems to suggest that Ms. Stormquist herself might benefit considerably from a cold shower or two this winter.

    Most Europeans however would choose the hot shower, and preferably without double the current gas price.

    South Stream in any case was supposed to supply gas to Southern European countries mostly unconnected to the Ukrainian gas route.

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