Ukrainian Gas Hub – a Chance for Europe

Home , Konstantin Petrov, Kulich, White Stream

UKRAINIAN GAS HUB – A CHANCE FOR EUROPE

Policy Paper

D N A L IN F

NORWAY

ESTONIA

SWEDEN

D LATVIA G

N MARK I DEN

IRELAND K LITHUANIA D North sea Baltic sea E

B E L GERMANY G POLAND IUM

CZECH REPUBLIC

SLOVAKIA M O L I A D A USTR O Y V R A HUNG A FRANCE ROMANIA CR O

L A A G T IA IT SERBIA AL ORTU P Y BULGARIA SPAIN

GREECE Prepared by Lukas Kulich, Science Po, DiXi Group Fellow

This report has been created under the Ukrainian Think Tank Development Initiative, implemented by the International Renaissance Foundation (IRF) in partnership with the Think Tank Fund (TTF) and funded by the Embassy of Sweden in Ukraine (SIDA).

The views and interpretations expressed in this report are the authors’ and do not necessarily reflect those of the Government of Sweden.

DiXi Group is Ukrainian think tank involved in research and consultations related to information policy, energy, security, and investments.

Our mission is to be a driving force of high-quality changes in the energy sector, in order to achieve good governance and responsible consumption on the way towards sustainable energy. These changes envisage establishment of free and competitive markets with a high level of transparency, efficient regulation and respect for the rule of law principles, effective production and consumption of energy resources, overcoming corruption and other negative phenomena.

DiXi Group does not take any political positions; therefore, the views expressed in this publication are those of the authors.

This publication is available for downloading from the information-analytical resource Ukrainian Energy (www.ua-energy.org).

For additional copies of this document and further information, please contact:

02095, Kyiv, 24 Sribnokilska Street, P.O. Box 68 [email protected]

The current decade is far from being finished but it Effective implementation of legislation is hard to has already became an important part of modern achieve and economic growth together with busi- Ukrainian history. Ukrainian governments were for ness creation have fallen considerably since the War far too long undecided in what direction to choose in Donbas. Until the Revolution of Dignity, Ukraine’s for the development of their country: either to align energy sector had been heavily dependent on Rus- with the European Union or with the Russian Fed- sia due to both Gazprom’s monopolistic position as eration. When the former Ukrainian President Viktor supplier in the Ukrainian gas market and Kremlin’s Yanukovych refused to sign the Ukraine-European influence on Ukrainian officials. Union Association Agreement in November 2013 and thus decided to comply with the Russian Fed- The 2013 rupture with Yanukovych’s ancient régime eration, pro-EU Ukrainians assembled in the Maidan gave Ukraine a unique opportunity to create a liber- square where violent clashes between police and alized and healthy economy. In order to achieve this protesters took place in the early 2014. Yanukovy- objective, a stable gas supply is needed. Gas is one of ch then fled to Russia in March of the same year. the most important elements in Ukrainian economy: Ukraine consequently started new period in its his- it is not only used for energy-intensive industrial re- tory with the desire to achieve economic prosperity gions in the East of Ukraine but it is also an essential and to join the European Union. fuel for residential heating. This said, gas supply was also Ukraine’s weak spot since the country had been There is nevertheless a long road ahead for Ukraine reliant only on the Russian Behemoth - Gazprom. Af- in its quest to achieve these objectives. The counter the unlawful annexation of Crimea by Russia in try’s economy had been for too long dominated by March 2014, the need to drift away from Russian gas personal interests of oligarchs. Ineffective adminis- and to diversify gas supply became more important tration and corruption continue to reign in Ukraine. than ever before in Ukraine. 4 Ukrainian gas hub – a chance for Europe

Creation of a gas hub in Ukraine plays an impor- of this report (‘What is a Gas Hub?’), the report will tant role in achieving gas supply diversification and present the theory behind functioning of a gas hub liberalization of Ukrainian gas market. Gas hubs and associated energy exchanges. In its second concentrate large quantity of gas supply that as- part, (‘Creating Gas Hub’), the report will list all the sures long-term energy security for the country, as necessary elements for its design and hub creation well as gas-on-gas competition, which pushes the in Ukraine. In the third part (‘Threats and Opportu- prices of blue fuel down. Gas hub will furthermore nities to Gas Hub Project’), the report will present contribute to the improvement of overall business potential opportunities and obstacles to the gas environment in Ukraine and to further Ukrainian in- hub launch. The report will then finish with a series tegration into the European Union. In the first part of recommendations.

UKRAINIAN DEPENDENCE ON RUSSIAN GAS PIPELINE IMPORTS 2008-2015*

70 90,00%

79,34% 80,00% 60 75,55% 70,00%

50 63,37% 60,04% 60,00%

40 51,64% 49,60% 50,00%

66,3 30 40,00% 57,6 59,3 54,8 52,6 51,9 50,4 34,04% Gas volume (inbcm) 44,8 30,00% 20 42,6 36,5 32,9 33,3 20,00% 18,32% 26,8 25 10 14,5 10,00% 6,1 0 0,00% 2008 2009 2010 2011 2012 2013 2014 2015

Russian Gas import (bcm) Ukraine’s gas consumption (bcm) Dependence Ratio

* Dependence ratio is calculated as the division of Russian gas imports by Ukraine’s overall gas consumption for a specific year. Data retrieved from http://naftogaz-europe.com/article/en/NaturalGasSuppliestoUkraine and http://www.naftogaz.com/files/Zvity/Naftogaz_Annual_ Report_2015_engl.pdf, p. 86 UKRAINIAN DEPENDENCE ON RUSSIAN GAS PIPELINE IMPORTS 2008-2015* Ukraine's Non-Industrial Gas Consumption 1998-2015 90 60% 57% 56% 56% 54% 80 51% 51% 50% 47% 46% 70 45% 45% 45% 45% 44% 44% 42% 43% 40% 60 40% 37%

30%

40 75,6 75,7 76,3 75,8 76,4

Gas volume (inbcm) 73,4 73,9 70,5 69,8 69,8 66,3 30 20% 57,6 59,3 54,8 51,9 50,4 42,6 20 34,3 34,1 34,2 33,8 33 31,5 33,1 30,3 29,7 29,7 29,6 29,2 10% 27,5 28,9 27,9 28 27 24,2 10 18,9

0 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gas Consumption in Household, DNCs, Government Financed Institutions Total Gas Consumption Gas Consumption Ratio

* Gas Consumption Ratio is calculated as the division of non-industrial consumption (households, district heating companies and governmental institutions) by Ukraine’s total gas consumption for a specific year. Data retrieved from http://naftogaz-europe.com/article/en/GasConsumptioninUkraineeng.

D N A L IN F

NORWAY

ESTONIA

SWEDEN

D LATVIA G

N MARK

I DEN K IRELAND Baltic sea LITHUANIA D North sea E

B E L GERMANY POLAND G IUM

CZECH REPUBLIC

SLOVAKIA M O L A D A USTRI O Y V R A HUNG A FRANCE ROMANIA CR O

L A A T G I A SERBIA IT AL ORTU P Y BULGARIA

SPAIN

GREECE 5 Policy Brief 6 Ukrainian gas hub – a chance for Europe

What is a Gas Hub?

1. Gas hub defined therefore operate as a single system. Physical gas hubs are used more in the United States (e.g. the Simply speaking, a gas hub is a location where sev- Henry Hub) than in Europe where virtual gas hubs eral gas pipelines interconnect. The interconnection are used more extensively. of several supply pipelines represents an opportunity to trade and physically exchange gas between Virtual (also known as balancing) hubs cover wider a large number of buyers and suppliers. Whilst the geographical area, represented by a national or a first gas hubs were established in the United States transnational gas network. In a virtual gas hub, the as early as in the 1950s (e.g. the Henry Hub in Loui- authority operating the gas transmission network siana), the concept of gas hubs came to Europe sig- hub may accept gas at any point of the geographical nificantly later except the United Kingdom which zone covered by the hub; a virtual hub is thus a bal- established its National Balancing Point (NBP) in ancing point inside a pipeline system. Whilst physi- 1990s. The majority of gas hubs in continental Eu- cal hubs permit larger volume trading, more partici- rope have been created only in the last 10 years and pants may entry gas trading in virtual hubs. Contrary their development was catalyzed with the arrival of to physical hubs, participants in virtual gas hubs can Liquid Natural Gas (LNG) into European gas market. choose among various exit/entry points within the Among the most important gas hubs in Europe are gas grid and have no obligation to arrange transpor- the Title Transfer Facility (TTF) in the Netherlands, tation of gas; the transportation of gas within the GASPOOL in Germany, PEG Nord in France and Cen- grid is the obligation of an independent Transmis- tral European Gas Hub (CEGH) in Baumgarten, Aus- sion System Operator (TSO). tria, which was created just in 2013. The presence of multiple supply gas pipelines in A gas hub can be either physical or virtual. Physical gas hubs will create gas-on-gas competition, which hubs are placed in a specific geographical location will push gas prices down. Moreover, the interplay where pipelines physically interconnect and where of supply and demand in gas hub trading will allow the entire gas transmission system is located; they for the discovery of gas market price. Gas hubs thus BOX 1: WHAT IS HENRY HUB?

Henry Hub is a physical gas hub located in Erath, Louisiana. It was indirectly named by William Henry, a German national who immigrated to the United States in 1840s. Henry Hub is owned by Sabine Pipe Line LLC (a subsidiary of Chevron) and interconnects four intrastate and nine interstate gas pipelines owned by private and public operators. Its futures contracts have been traded at the New York Mercantile Exchange (NYMEX) since 1990s.

What is a Gas Hub? The hub as such does not transport big quantities of gas (only 1.8 billion cubic feet, i.e. 50.97 mcm, per day) despite large number of associated exchange trading: most of futures contracts are actually not physically delivered but cleared at the NYMEX exchange. With 400 000 contracts being traded every day, Henry Hub is very liquid and became the benchmark for other gas prices.

Henry Hub is nevertheless not a 100% physical hub. There are significant distances between entry and exit points and compressor stations; Henry Hub should be thus imagined as a ‘bowl of spaghetti’.* Nevertheless, due to the tight concentration of pipelines at one space, Henry Hub may be imagined as a gas exchange point and therefore to be classified as a physical hub.

* Rusty Braziel, “Henry The Hub, I Am I Am – Understanding Henry Hub: How Changing Natural Gas Flows Will Impact The Benchmark“, RBN Energy LLC, published on 23 September 2012, https://rbnenergy.com/henry-the-hub-i-am-i-am-understanding-henry-hub

** Rusty Braziel, “Henry The Hub, I Am I Am – Understanding Henry Hub: How Changing Natural Gas Flows Will Impact The Benchmark“

Location of Henry Hub and Respective Pipelines in Erath, Louisiana**

Texas Gas Columbia Gulf Trunkline Sonat

Trunkline Gulf South

Sabine Bridgeline Henry NGPL Hub Acadian

Sea Robin Jefferson island

7 Policy Brief 8 Ukrainian gas hub – a chance for Europe

TYPES OF SERVICES OFFERED AT GAS HUBS

Below is the list of the most common services at gas hubs (the services offered may vary from one gas hub to another):*

• Transportation: gas transportation within the hub, gas transportation from one pipeline to another, hub-to-hub transportation

• Storage: short-term (so called ‘parking’) or long-term

• Peaking: selling additional gas in the case of unexpected increases in demand

• Title transfer: changes in ownership of a specific volume of gas present in a hub

• Gas loaning: an advance of natural gas repaid later by the shipper within a short-term period

• Gas management: compression, balancing, pooling/volume aggregation

* Adapted from “Conceptual design for a virtual gas hub(s) for the east coast of Australia”, FTI Consulting, December 2015, http://www.aemc.gov.au/getattachment/98035b44-a513-4d34-a5a0-9048b7166db3/FTI-Consulting-%E2%80%93-Conceptual-design-for-a- virtual-g.aspx, p. 37, 38 help significantly improving overall efficiency of country dispose of a sufficiently high gas storage gas markets.1 The gas-on-gas competition in gas and is no longer dependent of one major provider. In hubs offers significantly lower market prices than addition to energy security, gas hubs highly increase those in long-term contracts (LTCs) signed with ma- political and economic importance of the country in jor gas suppliers2 and eliminates to a large extent which they are located. They favour integration of political motivations behind gas supply. While the regional gas markets into a transnational or even oil-indexed LTCs are still present in Europe, they are the world gas market. In order to succeed with this progressively fading off: major gas suppliers such as integration, it is beneficial that several already func- Gazprom are unwillingly moving to a price area iden- tioning hubs exist within the geographical space of tic or at least comparable to spot gas prices by offer- a planned transnational gas market and that these ing significant discounts in order to secure demand hubs can trade between themselves without any for their products. Gas hubs promote also futures economic or technical barriers (for this purpose, a exchange trading, hedging against eventual price sufficiently developed gas interconnection is need- risks and financial speculation. ed to assure that gas molecules may flow in any direction).3 Gas hubs thus represent the key ingre- Gas hubs are important in assuring short-term en- dient for development of further energy integration ergy security: gas can be purchased from hubs to into a transnational gas market.4 cover short-term hikes in demand (especially during heating seasons) or unexpected supply disrup- 2. Pre-requisites for gas hub creation tions. They play nevertheless a key role in gaining and functioning long-term energy security too: thanks to the stored volumes of gas from a large number of suppliers, a In order to establish a gas hub, several requirements are to be met. Firstly, a fully liberalized gas 1 Several gas hubs (e.g. the Henry Hub in the United States or National market is crucial in order to create competition be- Balancing Point in the United Kingdom and Title Transfer Facility in the Netherlands) have already reached a significant level of maturity defined 3 The Energy Community, created in 2006, is an example of such effort: it by a high churn rate and thus offer a benchmark gas price. This is not the comprises EU states, Albania, Bosnia and Herzegovina, Kosovo, Republic case of gas hubs in Central and Eastern Europe which, contrary to the of Macedonia, Moldova, Montenegro, Serbia, Georgia and Ukraine. The North-Western Europe are yet to reach maturity. For more information, non-EU states of the Energy Community are committed to implement see Heather (2015) EU’s acquis communautaire in the fields of energy what promotes their 2 After the creation of NBP in the United Kingdom, the gas-on-gas prices integration to the Energy Community and finally to the European Union. were as low as 30% compared to LCSs in late 1990s. Heather (2010), p. 12 4 Heather (2015), p. 12 FIVE MAIN REQUIREMENTS THAT LEAD TO SUCCESSFUL TRADING

Heather (2015) mentions in his paper on the evolution of European traded gas hubs 5 main elements necessary for creation of a successful gas exchange:*

• Liquidity: how quickly it is possible to convert an investment portfolio to cash without affecting the asset’s price (standardization of traded contracts leads to increased liquidity)

• Volatility: energy markets tend to be very volatile and also very liquid, they are also very sensitive to external information

• Anonymity: clearing houses allow for trade between both ‘big’ and ‘small participants on unbiased basis

• Market Transparency: openness of public information increases traders’ confidence in markets

• Traded volumes: the importance of gas hub increases with the increase of traded volumes of gas

* Adapted from Heather (2015), p. 7-8 tween suppliers needed for market price discovery of legal and administrative rules for gas transmis- and for the consequent pushing of gas prices down. sion, trading and associated responsibilities is indis- Secondly, a gas hub must attract a large number pensable for setting both legal and technical basis of suppliers and buyers in order to assure efficient of both gas hub functioning and the associated gas competition and to have a sufficiently high gas in- exchange.5 The TSO is also responsible for balancing flow. High level of transparency in gas trading is the amounts of linepack (gas currently ‘squeezed’ in one of the necessary elements how to attract gas pipeline) and in order to prevent any gas shortages suppliers and buyers. Exchanges in gas hubs must on a daily basis. be carefully controlled and regulated and the data from hub trading must be made accessible to pub- Next, the entry to the gas hub must be made on a lic to ensure transparency and the trust of traders. non-discriminatory basis. While both entry and exit Thirdly, the Third Party Access (TPA) is necessary for to physical hubs are limited to interconnected gas a gas hub creation. The gas grid must be unbundled; supply pipelines, virtual hubs dispose of multiple that is the transmission network operator becomes geographically-dispersed entry points (e.g. storage independent of gas producers and suppliers in or- or production sites, pipelines from foreign gas sup- der to eliminate any commercial or political abuse pliers, LNG re-gasification terminals) as well as exit done to gas purchase. However, unbundling of the points (LNG compression terminals, transportation gas network and establishing an independent TSO pipelines, district heating companies, power plants can represent a complicated process, as it requires or industrial sites). Entry and exit tariffs for gas flows substantial changes in energy legislation and regu- are nevertheless necessary to sustain activities of lation. TSOs linked to management of gas transportation and pipeline maintenance (in Continental Europe, Furthermore, both virtual and physical hubs need suppliers are obliged to book the capacity which an authority which will manage and oversee them. shall be used for entry and exit of their gas supply This process is nevertheless more complicated in and the capacity booked can be traded on a second- virtual hubs where the TSO is responsible for all ary market). A postage stamp tariff model is used the transport, storage and balancing of gas within 5 An example of such code is the Uniform Network Code for the National the grid’s large pipeline system. Establishing a set Balancing Point in the United Kingdom, see https://www.ofgem.gov.uk/ licences-codes-and-standards/codes/gas-codes/uniform-network-code. 9 Policy Brief 10 Ukrainian gas hub – a chance for Europe

TRADE IN ENERGY MARKETS

There are two ways for trading in energy markets:

1. Over-the-counter (OTC) trading: bilateral trading between a buyer and a seller, which may be dealt directly or mediated via brokers. Forwards are OTC contracts, mandating delivery of a commodity on a specified date. Forwards are settled only after the delivery of gas, there is therefore a full counter-party risk throughout all the delivery period.

2. Energy exchanges: matching bids of buyers and sellers on anonymous basis (clearing). Futures contracts are traded in energy markets which, like in the case of forwards, mandate a delivery of commodity. However, futures contracts are processed by a Clearing House, which requires from buyers and sellers a “margin” in order to cover associated counter-party risk.

Contracts traded may be either spot (Intra Day, Day Ahead), prompt (Balance of Week, Weekend, Balance of Month), or near/mid-far/curves (3 months, 6 months, 1 year…).

to apply the same tariff for a uniform gas unit when The process of gas hub construction is nevertheless entering or leaving the market but other models of very lengthy and it takes generally 10-15 years to tariff pricing are also used e.g. matrix approach, dis- achieve a mature gas hub.7 Different actors (state, tance to the virtual point etc.6 suppliers, traders etc.) with different interests and different degree of commitment to the project have Other gas hub requirements are of financial -na to participate together. As it has been already seen ture: a large number of buyers is needed to secure above, some actors involved in the allocation of en- a sufficient level of liquidity in the market. Stand- ergy resources will not agree with a fully liberalized ardization of contracts helps to achieve simplicity gas market, as their rent from activities associated in gas trading and offers possibility to contract gas with gas will decrease with the rise of market trans- on spot and future basis. This opens space for fu- parency. Moreover, the nature of gas hub is equally tures market, financial hedging and speculation. Fi- determined by states’ cultural attitude towards nancial speculation shall not be nevertheless seen trade: in Central and Eastern Europe, we may wit- as a threat to gas markets: financial actors are im- ness more regulated gas hubs trading than e.g. in portant as they increase market’s liquidity needed the United Kingdom what is a country traditionally for sustaining the market. Creation of an online- oriented towards free trade. The cultural and politi- trading platform based on a bidding system with a cal attitude towards the establishment of gas hubs is low transaction cost is thus absolutely crucial for an especially important in the case of post-communist efficient functioning of a gas hub. For this purpose, countries in transition, such as the case of Ukraine. a clearing house processing matching bits between suppliers and traders on the basis of anonymity has to be equally established (the clearing house would increase the confidence of traders by removing counter-party risk and thus allow investors to op- timize their portfolios). At the same time, gas hubs still allow to exchange gas in gas on a bilateral or over-the-counter (OTC) basis.

6 For different pricing entry-exit tariffs, see paper by Maurice Vos, Bert Kiewiet and Konstantin Petrov, “Gas Transmission Pricing Models For Entry-Exit Systems and Implementation Options“, http://crninet. com/2013/2b.%20Kiewiet-Paper.pdf 7 Heather (2015), p 6 DEVELOPMENT OF A GAS HUB TO MATURITY

Heather (2015) describes ‘the path of maturity’ of a gas hub as follows:*

“The process usually starts with a move to Third Party Access (TPA) to the network infrastructure, often requiring legislative changes to force incumbents to release infrastructure capacity and gas supply volumes thus incentivizing independents to enter the market. There is a requirement for the adoption of rules and regulations governing the physical side of the business, whilst the emergence of standardized contracts will favour the commercial aspects. This will then be followed by bilateral trading, often aided by the first brokers, helping to create trading opportunities between counterparties. These trades start to be reported in the trade press, thus creating the beginnings of a transparent market. With price disclosure comes price discovery which in turn attracts more players to the market, often at this stage smaller physical traders and the first tentative moves by financial players too. The creation of exchange products (futures), based on the underlying physical contracts, offers greater access to the market, especially by non-physical players (who will always close out their trading positions before maturity).

Gradually, as increasing numbers of varied participants come to trade in a particular market, a forward curve will develop and this will be used for risk management purposes. The final stage of maturity is when the hub develops sufficient liquidity for traders to use specific traded products (such as the Day Ahead or the Month Ahead) as indices on which to price their physical transactions.”

* Heather (2015), p 6-7 ** Heather (2015), с. 7 HUBS‘ PATH TO MATURITY** Indices derived for LT Contracts

Liquid Forward Curve Develops

Futures Exchange 10+years? Non-Physical Players enter

OTC Brokered Trading

Balancing Rules&Standardised Trading Contracts

Price Discovery and Disclosure

Bi-Lateral Trades

Third Party Access to Pipelines/Regas Terminal

Source: H.Rogers (OIES) 11 Policy Brief 12 Ukrainian gas hub – a chance for Europe

Creating Gas Hub in Ukraine

3. Why to create a gas hub in Ukraine? ter heating seasons. Moreover, the withdrawal from LTCs and the implementation of gas-on-gas com- The annexation of Crimean Peninsula and the war in petition policies will push gas prices further down the Donbass Region harmed the Russian-Ukrainian and thus alleviate the financial burden bestowed relations for years to come. Ukraine alone can no over the country.1 However, there is a long road to longer rely on Gazprom as a sole supplier for gas go. Ukraine did not undergo any major reforms on and the country must undertake a very thorny but gas market liberalization before the Revolution of important path to achieve energy security on a long Dignity and it has to cope with the liberalization of term. Of the several ways of achieving energy secu- gas market only now. Ukraine has therefore to push rity, diversification of gas supply is by far the most itself towards the completion of substantial reforms efficient way of securing gas inflow. Gas hubs permit on liberalizing its energy sector and must create a gas trade between a substantial number of gas sup- competitive business environment for gas produc- pliers and buyers. Since an important concentration tion, transport and trading. of gas can be stored on long term; gas hubs represent therefore the key element in Ukraine’s energy Besides the economic advantage, establishing a diversification efforts. Establishing a new gas hub new gas hub will have a very important political im- does not mean a complete end of Russia-originated pact. Ukraine showed after the tumultuous events gas in Ukraine but it is nevertheless an important of 2013-2014 its determination to end with the till- limitation to Russia’s influence over Ukraine’s en- then reigning status quo, based on the constant ergy sector. switching of its favour between the European Un- ion and the Russian Federation. Ukraine finally reaf- A large volume of gas traded in the hub will assure firmed itself as a country willing to join the EU and that there will be a sufficient amount of gas supply for Ukraine’s domestic consumption and that there 1 In 2015, then-Prime Minister Arseniy Yatsenyuk stated that despite Gazprom had offered a discounted price of $212 per thousand cubic me- shall not be any additional worries whether the ters, supplies from Europe were even cheaper and cost $200 per tcm. country will have a sufficient amount of gas forwin - Leonid Bershidsky, “How Ukraine Weaned Itself Off Russian Gas”, Bloomb- erg View, published 12 Jan 2016, https://www.bloomberg.com/view/articles/2016-01-12/how-ukraine-weaned-itself-off-russian-gas to commit itself to adopting reforms in accordance pacity of 31.3 bcm.2 Five storages are concentrated with the EU acquis communautaire. The creation of in the western Ukraine (Bilche-Volytsko Uherske, a gas hub would not only create a Ukrainian regional Uherske XIV-XV, Oparske, Dashavske, Bohorod- gas market but would also allow for Ukraine’s fur- chanske) with a total capacity of 25.32 bcm what ther integration into the European Energy Commu- represents 84% of the country’s storage capacity. nity. The gas hub will be beneficial for the European Gas storages at the east of the country are aimed Union too: a successful development of the gas hub primarily to secure Kyiv’s domestic consumption, will not only further weaken Gazprom’s still-lasting to provide gas inflow to regions focused on heavy commercial power over the European gas market industry, or they are located closer to the unstable but will assure energy security for the neighbouring conflict zone. In order to decrease any costs linked EU countries (Hungary, Poland, Slovakia, and Roma- to the gas transportation and avoid the unstable nia) on a long term. Creating a new gas hub will thus Eastern region of Ukraine, it is desirable to establish help progressively establish Ukraine as an important a new gas hub in the western Ukraine at the proxim- political power in the region and will strengthen its ity of EU member states. image as a politically responsible country willing to achieve stability and prosperity. The Bilche-Volytsko-Uherske gas underground storage facility represents an optimal spot for the Finally, a further liberalization of Ukraine’s gas mar- creation of a new gas hub. With 17 bcm of storage ket will help in achieving even more transparency in capacity and being the westernmost among all of the energy sector. Despite the fact that Ukraine has Ukrainian facilities, it is the largest underground gas done already a lot in order to diminish the corruption storage in Europe3 and offers the best possibility for and power of pro-Russian Ukrainian oligarchs in the the concentration of multiple sources of gas. Gas energy sector, some space for political and economic pipeline infrastructure is well-developed in this re- manipulation unfortunately still exists. However, the gion thanks to the presence of the Ukrainian government must show its willingness to implement the necessary measures to achieve im- interconnection of several pipelines (Soyuz, Prog- portant levels of transparency if it wants the gas ress, Urengoy-Pomary-Uzhgorod, Kyiv-Zakhidnyi hub project succeed, even despite the objections Kordon I/II, Dolyna-Uzhgorod, Ivatsevychi-Dolyna of pro-Russian officials still present in the Ukrainian I/II/III). The Bilche-Volytsko-Uherske gas under- government and ministries. The creation of the gas ground storage has therefore a big potential to hub will therefore greatly help in efforts to increase become an important European crossroad through transparency in Ukrainian gas market. which gas will be able to flow into and from the Eu- ropean Union. It will play an important role in sup- 4. Where to create a new gas hub? plying gas to over all the territory of Ukraine thanks to the gas interconnection points with Poland (with The most important question to be raised about gas capacity of up to 1.5 bcm per annum), Hungary (up to hub launch in Ukraine is whether the new gas hub 5.5 bcm per annum), and Slovakia (up to 15 bcm per should be physical or virtual and where it shall be annum).4 created. This report argues that due to the specific allocation of Ukrainian gas pipelines and gas stor- 2 “Gas Storage”, utg.ua, http://utg.ua/en/utg/gas-transportation-system/ ages, the new gas hub shall work as a physical hub underground-gas-storage.html, accessed 8 October 2016. 3 Pyotr Vorobyov, “Ukraine’s Gas Transmission System: Problems and Pros- and shall be located in the west of Ukraine. pects”, strategic-culture.org, published on 2 July 2015, http://www.strategic-culture.org/news/2015/07/02/ukraine-gas-transmission-system- Currently, Ukraine disposes of 12 gas storages in its problems-and-prospects.html 4 territory (one additional storage facility is located in “Ukraine’s Gas Sector Reform: A Future Win-Win for Ukraine and Europe“, Policy Brief by DiXi Group, published 10 May 2016, http://dixigroup.org/ the occupied Crimea) with a total current storage ca- eng/publications/ukraines-gas-sector-reform-a-future-win-win-for- ukraine-and-europe/

13 Policy Brief 14 Ukrainian gas hub – a chance for Europe

UKRAINE’S GAS STORAGES AND THEIR BALANCE*

* Image taken from http://naftogaz-europe.com/article/en/englstorage, accessed 16 October 2016

Since this gas storage facility is big enough to ac- Europe safe and unharmed; doing otherwise would commodate substantial amount of gas and other gas constitute a setback for Moscow. However, in this storage facilities in Ukraine are not full even during highly unstable region, this possibility cannot be to- the winter season, a physical hub is preferable to a tally excluded. virtual gas hub since the latter would have to cope with complex administrative rules over a large terri- The new gas hub could operate on a basis compa- tory. Creating virtual hub is equally not desirable for rable to the Henry Hub in the US: it will function as the reason that Ukraine does not need any gas entry/ a physical hub where several gas supply pipelines exit points on the north and east of the country (Rus- physically interconnect themselves and where buy- sia and Belarus being dominated by Gazprom) as the ers are allowed to purchase gas. For this reason, a gas market will focus to the west of the country. completely new pipeline infrastructure shall be constructed in order to assure an appropriate intercon- The other four gas storages located in the Western nectedness between the supply pipelines and the Ukraine will be used mainly for supplying domestic pipelines used to distribute the gas after the deal. demand in Ukraine, especially for the winter heating The Bilche-Volytsko-Uherske storage disposes of season, but may be used as the storages of last re- excellent interconnection capability with 291 gath- sort in extreme cases if the Ukrainian domestic gas ering wells in Bilche-Volytske and 50 wells in Uher- demand permits so. So far, there has been no im- ske deposit5, which would – in the case of a high pediments to pipelines in the areas currently under state of hybrid war. It is highly improbable that pro- 5 N. Prytula, R. Boroviy, M. Prytula, O. Khymko, “Matematichna model Bilche-Volitskoho Pidzemnoho Skhovyshcha Hazu (Mathematic Model of Russian separatists would attack these pipelines as the Bilche-Volytsko-Uherske storage, own translation), 2010, accessed it is in the Russian interest to keep flows of gas to on October 12, http://www.nbuv.gov.ua/old_jrn/natural/Vnulp/Komp- nauky/2010_686/27.pdf diversity of gas supply inflows – offer the capacity flows will create space for manipulations and thus needed to accommodate gas of all the different ori- decrease the hub’s credibility. However, cooperation gins. The construction of additional infrastructure with Ukrtransgaz should not be excluded since the for interconnection may prove as costly but it can hub will serve also as an important gas supply for nevertheless help in achieving significant decrease Ukrainian domestic gas and Ukrtransgaz shall be on gas purchase on a long-term basis. responsible for managing transport of gas into and out of the gas hub. The gas hub must assure to acquire a sufficient number of compressor stations in order to assure The gas in the Bilche-Volytsko-Uherske storage fa- that any gas purchased by Ukrainian suppliers will cility will have two main objectives: to serve as gas be able to flow anywhere in the country. Since the supply for the consumption in Ukraine and to serve target audience of the gas hub is both Ukrainian do- also as an emergency “package” in the case of high mestic market and the countries of the European gas demand. For this reason, the Resolution “On Union, the gas hub must assure that there will be Approval of the Code of Gas Transmission System”6 enough pipeline capacity to deliver gas to both the should introduce new provisions concerning the co- East and West, pipelines with bi-directional flow operation with the gas hub Authority in which new would be therefore more than desirable. It is nev- inter-storage balancing mechanism will be intro- ertheless important to underline the fact that gas duced. In the period of high gas demand (e.g. heat- pipelines and gas storages in Ukraine must be kept ing season), the balancing mechanism will activate in best condition; Ukrtransgaz together with the au- independently of the Gas Hub Authority the pur- thority managing the new gas hub must assure that chases of gas for the Ukrainian hinterland to cover both pipelines and gas storages are well maintained any eventual gas shortages without disrupting gas and regularly tested for any potential flaws. Any dis- trades already made or trades being dealt with (the ruption in gas inflows or outflows would severely main idea is that suppliers will purchase gas without damage gas trading and would harm the confidence any disruption of the market but will take use of the of traders in Ukrainian gas trade. existing gas in the hub for domestic purposes).

5. Creating a Network Code Further additions shall equally be made to the for new gas hub NEPURC resolutions “On Approval of the Code of Gas Storage Facilities”7 and “On Approval of the Code It is necessary to create a Network Code for the of Gas Distribution Systems” 8. These additions shall new gas hub that shall be applied only to the ju- introduce provisions on the separation of the hub’s risdiction of the hub. This code shall contain all the gas storage facilities from Naftogaz or the future necessary provisions for the transmission of traded storage operator, as the new gas hub will represent gas in compliance with the Law “On the Natural Gas a new independent jurisdiction. In order not to hin- Market”, mainly the non-discriminatory access to the der interests of foreign customers in storing their local grid of interconnected pipelines and provisions gas in Ukraine, a non-discriminatory access of third in alignment with the rules presented in the Third parties to the gas storage facilities within the gas Energy Package on balancing gas volumes in un- hub should be introduced into the resolution. The derground storage facilities. This Code should also modified resolutions should also contain new provi- establish an overseeing Authority responsible for sions linked to the technical aspects of the gas hub, a good of management of the grid. It is preferable such as the functioning of long and short term gas that this Authority will be independent from Nafto- storage, gas pooling, title transfer etc. gaz (if possible, it should be independent even from 6 The resolution can be found in Ukrainian language here: http://zakon5. Ukrtransgaz which should not have more than 49% rada.gov.ua/laws/show/z1378-15 stake in order not to interfere in any way with the 7 The resolution can be found in Ukrainian language here: http://zakon3. functioning of the hub). Should not the new gas hub rada.gov.ua/laws/show/z1380-15 8 The resolution can be found in Ukrainian language here: http://zakon0. authority be independent, any non-transparent gas rada.gov.ua/laws/show/z1379-15 15 Policy Brief 16 Ukrainian gas hub – a chance for Europe

6. Trading in Gas Hub addition, barriers include the flow of documents, as there is still no transition to EDI (electronic data So far, two energy exchanges involved in natural gas interchange) system, which would simplify market trading exist in Ukraine. The Commodity Exchange access to international traders who used to work Ukrainian Energy Exchange (CE UEEX) trades in all with this system. Despite these concerns, the ex- energy commodities available in Ukraine (coal, gas, change representatives are interested in the crea- oil, electricity, biomass). 9 UEEX was created in 2010 tion of gas hub and expressed willingness to par- and it is an open trading platform pricing the prod- ticipate in the activity11. ucts on the basis of fair price discovery between supply and demand using “BETS” private electronic This report argues that trades done at the new gas system for trading. Over 360 companies are mem- hub should be indexed to the existing exchange(s). bers on the exchange, are the market of oil products Such linkage will bring several benefits: 1) there is considered as the liquid one. As for the gas mar- will be no additional need to create new exchange ket, according to UEEX, it is not liquid in Ukraine. unique only to the gas hub trading; 2) there are established exchanges with a good credibility, 3) Another exchange is Ukrainian Gas Exchange (UGX), no additional on-line trading platforms will not be created by Ukraine’s investment bank Dragon Capi- needed for the trading. However, it is desirable to tal which started gas futures trading on 4 August create similarly to the Network Code a document 2016. However, the Ukrainian Gas Exchange website on short term trading in the gas hub. The document offers very little information on its trading.10 shall contain all the necessary provisions which establish a proper functioning of the gas hub within Among the issues in the gas market for foreign the exchange and all the procedures and informa- traders are problems with payments and booked tion necessary for traders, such as the confirmations capacities of gas transmission system. Currently, on purchase, proceeding on billing and payment, it is one of profound obstacles to expanding the pricing, termination of contracts, liabilities, warran- number of gas traders in the Ukrainian market. In ties and force majeure.

9 CE UEEX’ website: https://www.ueex.com.ua/eng/ueex/ 10 UGX’s wevsite: http://www.ugx.com.ua/ 11 Interview with CE UEEX representatives Moreover, a special clearing house within the ex- The creation of the gas hub exchange is thus cru- change shall be created and shall cooperate with cial for a fully liberalized Ukrainian gas market: not the new gas hub transmission authority in gas bal- only it will greatly enhance the transparency of the ancing. The exchange shall equally create standard- Ukrainian gas sector but it will inject the liquidity ized gas trade contracts to be traded on the spot needed to gas trading. market with futures with a specified delivery date.

D N A L IN F

NORWAY

ESTONIA

SWEDEN

D LATVIA G

N MARK

I DEN K IRELAND Baltic sea LITHUANIA D North sea E

B E L GERMANY POLAND G IUM

CZECH REPUBLIC

SLOVAKIA M O L A D A USTRI O Y V R A HUNG A FRANCE ROMANIA CR O

L A A T G I A SERBIA IT AL ORTU P Y BULGARIA

SPAIN

GREECE

17 Policy Brief 18 Ukrainian gas hub – a chance for Europe

THREATS & OPPORTUNITIES TO GAS HUB PROJECT

1. Legislation on Ukrainian TSO discriminatory third party access to the gas network, unbundling is still ineffective market gas pricing and energy security.2 Among other things, the law creates a viable legal environment Ukraine already did a great leap forward by adopting for introducing a foreign investor to the gas TSO, as the Law No. 2250 “On the Natural Gas Market”, rati- well as sets strict requirements effectively preclud- fied by Verkhovna Rada on 9 April 2015 and signed ing Russian companies from such partaking. by President Petro Poroshenko on 5 May 2015, with most of the legislation taking effect from 1 October The law did not impose any concrete measure how 2015. By early 2016, about 50 bylaws were adopted to unbundle Ukrainian gas supply and transmission. in order to make the Law on the Natural Gas effec- Instead of this, two alternatives for unbundling were tive1. The primary objective of this law is clear: to lib- proposed: 1) Ownership Unbundling (OU) where pro- eralize Ukrainian gas market, previously ultimately ducing and supply companies are not allowed to dominated by Naftogaz and DSOs, and to harmonize own majority stake in Ukrainian gas transmission it with existing European energy legislation in order networks and vice-versa (the law stipulated that OU to promote further energy integration of Ukraine would be applied by default) and 2) the Independ- into the European Union. It thus follows the Energy ent System Operator (ISO) model where Ukrainian Community’s Third Energy Package and notably the gas transmission network will remain in possession EU directives on functioning of natural gas inter- of Naftogaz but being operated by a third party in- nal market and conditions for access to natural gas dependent of Naftogaz.3 Only on 01 July 2016, Cabi- transmission networks. The law calls for TSO un- 2 The Law on the Natural Gas Market may be found in English version at: http://www.naftogaz.com/files/Information/Ukraine%60s%20Natu- bundling, gas market operation and regulation, non- ral%20Gas%20Market%20Law_engl.pdf 3 The option for Independent Transmission Operator which could be in pos- 1 “Ukraine’s Gas Sector Reform: A Future Win-Win for Ukraine and Europe“, session of energy groups but would have to exist as a separated legal Policy Brief by DiXi Group, p. 3 entity, was not mentioned in the law. net of Ministers of Ukraine published the Resolution the rules presented in the Third Energy Package No. 496, which endorsed the ownership unbundling since both Naftogaz and Ukrtransgaz would be un- model, though with specific reservations necessary der control of a single ministry what consequently for substantial distinguishing of powers between makes unbundling void. It was revealed that this two Ministries as much as alienation of the gas pipe- decision is linked with 4 bn UAH tender for the fa- line system from the state ownership remain legally vour of scandalous businessman Konstantin Grigo- prohibited 4. Prior to the publication, the resolution rishyn.7 The Energy Community, along with multiple had been reviewed by the Energy Community Secre- other stakeholders and donors, expressed its dis- tariat.5 The ownership unbundling is done in accord- satisfaction with this order and the current Ukrain- ance to the Energy Community’s Directive 2009/73/ ian Prime Minister Volodymyr Groysman pledged for EC, which states that a personal handling of this situation and maintained that a full vertical unbundling of Ukrainian TSO will “Under ownership unbundling, to ensure full inde- take place. Although this decision has been finally pendence of network operation from supply and recalled, Naftogaz was unprecedently subordinated production interests and to prevent exchanges to the Cabinet of Ministers directly. of any confidential information, the same person should not be a member of the managing boards of Moreover, on September 22, 2016, Verkhovna Rada both a transmission system operator or a transmis- adopted the long-waited Law No 1540 “On the Na- sion system and an undertaking performing any of tional Energy and Public Utilities Regulatory Com- the functions of production or supply. For the same mission”. The key objective of this law is clear: to reason, the same person should not be entitled establish an independent state Regulatory Author- to appoint members of the managing boards of a ity which will monitor and control energy and public transmission system operator or a transmission sys- utilities sector. This Authority will be responsible for tem and to exercise control or any right over a pro- a fair competition in energy markets and the correct duction or supply undertaking.“6 implementation of reforms in the energy sector. The members of the Authority shall be chosen by an ad The factual implementation of the chosen unbun- hoc Selection Committee, which shall consist of 5 dling model is materially complicated by the ongo- people (2 appointed by the President, 2 by the Par- ing arbitral proceedings between Naftogaz and liament and 1 by the Government upon the recom- Gazprom since terms and implementation of the mendation of the Ministry of Energy).8 current gas transportation contract is in the mid- dle of the parties’ claims. Nevertheless, both the Even if Ukraine’s gas market is currently in the state Energy Community Secretariat and the Ukrainian of transition towards a liberalized gas market, there government have provided for appropriate meas- is still a long way to go and as it was shown above, ures in the unbundling model. However, the Ministry the road is way too bumpy. The Ukrainian gas mar- of Economic Development and Trade of Ukraine did ket legislation is still under heavy influence of po- a controversial move in subordinating Ukrtransgaz litical and economic actors interested in acquiring without any discussion what is a direct breach of personal gains from the efforts for liberalization.

4 Unofficial English translation of this resolution can be found at http:// 7 ”ANALYSIS OF SITUATION OCCURRED WITH REGARD TO THE MINISTRY OF www.naftogaz.com/files/official_documents/CMU-unbundling-resolu- ECONOMY’S DECISION TO AMEND THE CHARTER OF NJSC “NAFTOGAZ OF tion-No496-ukr-eng.pdf. UKRAINE” RELATING TO THE CONTROL OVER PJSC “UKRTRANSGAZ”, Dixi 5 The text of this review can be found at https://www.energy-community. Group, published on 16 September 2016, http://www.slideshare.net/uaen- org/portal/page/portal/ENC_HOME/DOCS/4140379/32675252E16C57A6E ergy/dixi-groups-comment-regarding-the-situation-with-ukrtrasgaz. 053C92FA8C0B902.pdf 8 ”Ukraine: Law on Energy Regulator Finally Adopted”, cms-lawnow. 6 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:211:009 com, published on 7 October 2016, http://www.cms-lawnow.com/ 4:0136:en:PDF ealerts/2016/10/ukraine-law-on-energy-regulator-finally-adopted

19 Policy Brief 20 Ukrainian gas hub – a chance for Europe

NORD STREAM 2*

* Source: http://www.gazprom.com/about/production/projects/pipelines/built/nord-stream2/

Although the above-mentioned laws are significant order to mask political motivations behind these ef- efforts, their successful implementation and avoid- forts for the detour, Russia invokes forecasts for the ance of particular interests is indispensable for a growth of gas demand in Europe.9 However, as more creation of fully liberalized gas with a high level of renewable sources are being used, the real growth transparency without which the confidence of trad- for gas in Europe remains questionable. ers – and thus the new gas hub project – will fail. It is thus in the interest of competent ministries and One of the major Russian efforts for gas supply diver- authorities to speed up this project and make it as sification was the South Stream project. The South transparent as possible. Stream pipeline was projected to flow through an un- dersea pipeline located in the Black Sea and to enter 2. Nord Stream 2 and Turkish Stream the European continent in Bulgaria, offering gas sup- may represent threat to Ukrainian gas ply to all the Balkans. However, this project was met system with a disapproval from the European Union, which argued that the construction of this pipeline would Russia pushes further for the diversification of its have resulted into the increase of Russian gas mo- gas supply routes in order to achieve complete de- nopoly position in the region. The project was then tour of the Ukrainian territory and to secure its gas halted in 2014 on the basis of breach of existing Euro- supply for European market. Bypassing Ukraine is pean energy regulatory measures. South Stream be- based purely on political interest without any eco- ing abandoned, Russia pushed for several other pro- nomic rationale: Russia wants to deprive Ukraine of jects aimed on re-routing its gas despite the fact that its leverage over the Russian gas flowing through the pipelines supplying gas to Central Europe offered her territory, to eliminate her revenues from the gas 9 Mariia Melnyk, ”Opal rozbratu. Navisho Yevrosoyuz pidihrav antiukrayin- transport and thus to diminish its political power. In skym planam ”Gazpromu“, Yevropeyska Pravda, published 4 November 2016, http://www.eurointegration.com.ua/articles/2016/11/4/7056945/ * TURKISH STREAM

*Source: http://www.gazprom.ru/about/production/projects/pipelines/built/turk-stream/ the shortest way to do so. Gazprom bet on two cards: would go directly against the principles of European the Nord Stream 2 and the Turkish Stream. gas supply diversification mentioned in the Third En- ergy Package.10 The already existing Nord Stream 1 gas pipeline with a capacity of 55 bcm of annual transport originates The position of the European Commission became in the Russian town of Vyborg near the Finish bor- shadier with the decision of the EU Commissioner for der, crosses the Baltic Sea and ends in Greifswald, Regulation, Margrethe Vestager, to allow Gazprom Northern Germany. The Nord Stream 2 pipeline to use more capacity in the adjacent OPAL pipeline, would only twin the existing Nord Stream 1 pipeline, which is vital for the distribution of gas in Germany doubling the capacity to 110 bcm. The political moti- and Central Europe11 (Nord Stream 1 has been trans- vation between Nord Stream 2 is to end transits of porting until now only a slightly more than it is the Russian gas through Ukraine and to use Germany as half of its capacity12). The Nord Stream 2 project did the main point for further distribution of Russian gas 10 in Central Europe. Even if several European coun- Georgi Gotev, ”Sefcovic embarks on third trilateral gas talks on Ukraine”, euractiv.com, published on 31 August 2016, accessed 30 September 2016, tries called for the implementation of the project https://www.euractiv.com/section/energy/news/sefcovic-embarks-on- third-trilateral-gas-talks-on-ukraine/ (with the strongest voice for the project from Ger- 11 Rachelle Toplensky, Jack Farchy, Henry Foy, ”Gazprom and Brussels agree many), the EU Vice-Commissioner for Energy, Maroš to settle long-running dispute”, ft.com, published 26 October 2016, https://www.ft.com/content/9467b568-9b85-11e6-8f9b-70e3cabccfae Šefčovič, expressed his dissatisfaction with the 12 ”Estonia, 7 other countries send letter to Juncker on Nord Stream 2”, news- project, arguing that construction of Nord Stream 2 postimees.ee, published 17 March 2016, accessed on 8 October 2016, http:// news.postimees.ee/3622797/estonia-7-other-countries-send-letter-to- juncker-on-nord-stream-2 21 Policy Brief 22 Ukrainian gas hub – a chance for Europe

not seem to be viable but doubts about the firmness the Balkans and not in the Central and Western of the EU Commission’s commitment to Ukraine’s Europe, which constitutes the key market area for energy security arise after this decision. However, it Gazprom. However, the project leaves back-doors is possible to expect that the countries of Central opened for Gazprom: the fully built Turkish Stream Europe will object the OPAL. The countries of Cen- pipeline would have capacity of 60 bcm what tral Europe (Slovakia, Hungary, and Poland) will fight would give Gazprom in the case of need the pos- for further transit of Russian gas through their terri- sibility to detour Ukraine completely and still reach tory in order to keep their transit fee revenues; they the Central and Western European gas market. Fur- would also sue the European Commission for any thermore, Ukraine would lose with the construc- further decisions favouring Nord Stream 2. Moreo- tion of Turkish Stream gas flows over Ananiev- ver, Polish regulator has made already a serious Tiraspol-Ismail and Shebelynka-Ismail pipelines blow to the Nord Stream 2 project by arguing that (with total capacity of 26 bcm), supplying Romania, the new pipeline would be in breach with the Polish Bulgaria, Greece, Turkey and Macedonia. The Eu- competition law.13 ropean Commission has not pronounced itself on Turkish Stream as it is still in the stage of studying Gas will nevertheless continue to flow through the case.16 Turkish Stream thus represents rather Ukraine. Several countries of Central Europe have an indirect threat to Ukraine’s energy security com- still long-term ship-or-pay contracts with Gazprom pared to Nord Stream 2, which represents a direct (Slovakia until 2028 and Poland until 2022) and threat. However, if combined with Nord Stream 2, failures with delivery would prove too costly for Ukraine’s importance as gas transit country would 14 Gazprom. It is thus possible to argue that despite be diminished. It is therefore in Ukraine’s interest the stated Gazprom’s rejection to continue to trans- to fight against both Nord Stream 2 and Turkish port its gas via Ukraine, gas will continue to flow, Stream if it wishes to maintain its long-term energy albeit possibly in diminished volumes. security and to keep Russian gas flowing through its territory, the necessary condition for functioning Turkish Stream aims to replace the cancelled South of the gas hub. Stream project: the South Stream pipelines will not flow to Bulgaria but to Turkey which is not a member Establishing a new gas hub does not mean to put of the European Union. Consequently, the Russian end to flows of Russia-originated gas to Ukraine but gas in Turkey is planned to be dispatched over the it nevertheless represent an important limitation countries in the Balkans via Greece. The project was to Russia’s influence over Ukraine’s energy sector. announced by the Russian President Vladimir Putin However, in order to assure gas-on-gas competi- on 1 December 2014 but was temporally halted dur- tion in the new gas hub, Ukraine will have to pur- ing the Turkish shoot-down of a Russian aircraft al- sue negotiations with the Russian Federation since legedly on Turkish territory in November 2015 but it absence of Russian gas transit would decrease the 15 was nevertheless resumed on 10 October 2016. competition and cause serious damage to the gas hub project. The negotiations between Russia and Turkish Stream as such does not aim to completely Ukraine would be difficult, especially after the- an detour Ukraine: its target countries are located in nexation of Crimea and the war in Donbas. They are nevertheless two options available for Ukraine: 1) to 13 Henry Foy, Jack Farchy, “Nord Stream 2 pipeline risks delays due to Pol- ish hurdle”, ft.com, published 28 July 2016, https://www.ft.com/content/ convince the EU to force Gazprom to accept selling e2cf7602-5411-11e6-befd-2fc0c26b3c60 its gas on the Ukraine’s Eastern border and in this 14 Ladka Bauerova, “Gas-Tranit Deal Shows Cost to Russia of Bypassing Ukraine”, bloomberg.com, published on 5 June 2015, http://www.bloomb- case, no further negotiations with Gazprom over its erg.com/news/articles/2015-06-05/slovak-gas-transit-deal-shows-bypassing-ukraine-will-cost-russia 16 Kostis Geropoulos, “Šefčovič : EU wants Russia’s Gazprom, Ukraine’s Nafto- 15 Andrew Ward and Laura Pitel, “Russia and Turkey agree gas pipeline deal”, gaz to honour winter protocol“, neweuope.eu, published 1 November 2016, ft.com, published on 10 October, 2016, accessed on 10 October 2016, https://www.neweurope.eu/article/sefcovic-eu-wants-russias-gazprom- https://www.ft.com/content/52c05b6e-8f1f-11e6-a72e-b428cb934b78 ukraines-naftogaz-honour-winter-protocol/ gas in the new gas hub would be needed; 2) to start represent a threat to the Ukrainian gas hub where negotiations with German officials and business- large volumes of gas will be needed. men, since modernization of Ukraine’s gas transmission network is less costly than constructing a On micro level, the already-mentioned unbundling brand-new pipeline. of TSO will be crucial to assure transparent, reliable and efficient gas transport over the Ukrainian terri- 3. Gas storage is unprofitable tory. Ukrainian gas storages are operating on a very under current market conditions low level of their technical capacity, which makes them unprofitable, and some of the facilities might Ukrainian gas storage will play crucial role in the be closed. Ukraine also lacks of quick-cycle storage liberalization of Ukrainian gas market and in the facilities, as it is too expensive to inject and with- creation of the new gas hub. Ukraine disposes of 32 draw the gas in storage facilities technically difficult bcm of storage facilities which may be upgraded to and also expensive. In order to increase the profit- 17 50 bcm and in addition, Ukrtransgaz has capacity ability of its storage facilities, Ukrtransgaz has risen 18 transportation of 140 bcm annually. the entry tariffs for gas from abroad, however this move did not help to increase their profitability and However, the prospect for a liquid Ukrainian gas might well even deter some investors in booking the storage markets looks currently grim on both macro capacity for gas storage facilities.21 Moreover, there and micro level. On macro level, the demand for gas is a general complain to Ukrainian gas that even is currently falling in Europe. Despite the fact that if entry tariffs for gas from abroad have been set, gas storage business was once very lucrative in Eu- there are no exit tariffs for stored gas what greatly rope, many investments in gas storages were made hinders interests of investors in Ukraine’s under- all over Europe in last years and there is currently a ground gas storage.22 The entry tariffs being already surplus of gas storage facilities. The over-supply of high enough, it is advisable that with the construc- gas in Europe significantly narrowed the spread be- tion of new gas hub, the entry and exit tariffs will be tween summer and winter prices for gas, therefore lowered in order to increase the competitiveness of making the gas storage business much less compel- Ukrainian gas transmission system and thus attract ling.19 The closest EU neighbours of Ukraine - coun- new buyers. tries of Central Europe (Hungary, Slovakia, Czech Re- public and Austria) - already have a sufficient level Ukrainian underground storage facilities do not cur- of their domestic gas storage facilities. These coun- rently offer any competitive advantage over their tries are located near Germany which has the high- European rivals but with lower gas storage market est level of gas storage capacity just after Ukraine. prices, transparent rules for transmission and a di- Russia poses a problem too: Alexei Miller expressed versified supply of gas, they could become - attrac himself that Russia will never use Ukrainian gas tive for players in the energy field. Moreover, the 20 storage again due to an incident. It is, however, EU Vice-Commissioner for Energy Maroš Šefčovič questionable whether this statement is based on has already stated that Ukraine’s gas storage facili- truth but the lack of Russian gas could potentially ties will play an important role in the integration of 17 Vitalii Rybak, “Alan Riley: «Ukraine could be the main gas storage facilita- Ukraine into the Energy Community. tor for the East-Central Europe», ukrainianweek.com, published 14 March 2016, http://ukrainianweek.com/World/160497 18 http://utg.ua/en/utg/gas-transportation-system/characteristic.html, ac- Nevertheless, even if the short term prospects for cessed 14 October 2016 19 “Analysis of the Restructuring Options of NJSC Naftogaz“, World Bank, underground gas storage in Europe look grim, a published 9 February 2016, p. 95. http://documents.worldbank.org/cu- rated/pt/928071468185344153/Analysis-of-the-restructuring-options- 21 Analysis of the Restructuring Options of NJSC Naftogaz“, World Bank, of-NJSC-Naftogaz published 9 February 2016, p. 98 20 “Gazprom tries to discourage Europe to use Ukrainian underground gas 22 “EU shippers avoid Ukrainian gas storage as no exit tariffs set“, storage facilities”, europeandialogue.eu published 3 July 2013, http:// icis.com, published 19 July 2015, http://www.icis.com/resources/ www.eurodialogue.eu/Gazprom-Tries-to-Discourage-Europe-to-Use- news/2016/07/19/10017297/eu-shippers-avoid-ukrainian-gas-storage-as- Ukrainian-Underground-Gas-Storage-Facilities no-exit-tariffs-set/ 23 Policy Brief 24 Ukrainian gas hub – a chance for Europe

study by company Naftogazbudinformatyka shows should take advantage of the ever-developing LNG that in longer run, the outlook for gas storage is market in order to diversify its gas supply. This could positive and encouraging (Paul Bieniawski, expert of be done by importing LNG from major global play- the company Zechstein Energy Storage argues that ers in the field, such as the United States or Qatar. there will be even a shortage of these facilities in 5 However, Ukraine lacks any re-gasification terminals years23). If Ukraine wishes to monetize upon her gas and the prospect for building an LNG re-gasification storage facilities, developing a viable gas hub will be terminal in Odessa near the Black Sea is still too far a positive spill-over for the attraction of buyers. away, mainly due to the fact that Turkey will not allow LNG cargos pass through Bosporus. Ukraine thus still has to search for new opportunities how to take use of her gas storage facilities and For this reason, the most pragmatic solution for tak- there are several options, how to do that. Ukraine ing benefits of global LNG seems to use re-gasifi- can still take advantage of storage-poor countries cation terminals in Poland and to transport the US (Poland, Romania) or even with far-distance coun- LNG into Ukraine; Ukraine is already planning con- tries, e.g. Turkey24. Other possible option for Ukraine struction of a 99 km interconnector of 5 bcm/year is to develop LNG re-gasification terminals in the capacity (may be further updated to 8 bcm/year), Black Sea and to store this gas for LNG producers which will give Ukraine the possibility to reach the from abroad, notably the United States. LNG terminal in the Polish town of Świnoujście.25 This pipeline will operate in dual mode so, in the 4. Opportunities for gas supply case when Ukraine optimizes its gas balance and diversification remain limited for now increases production, or receives delivery points for Russian gas at the eastern borders, Ukrainian gas The Nabucco project with an ambitious capacity of may be exported to Poland. 31 bcm, connecting the Caspian region with central Europe via Turkey and the Balkans in which Ukraine The other option is taking use of the LNG terminal in could have participated, was halted by the Europe- Klaipeda, Lithuania, constructed in 2014. 26 However, an Commission. In 2005, the White Stream pipeline in order to get the re-gasified LNG to Ukraine, gas sparked hopes for Ukrainian gas supply diversifica- molecules would have to be transported via either tion. White Stream aimed to transport Azerbaijani Belarus or Poland. Since Belarus’ gas transmission gas through Georgia to either Ukraine or Romania network is owned by Gazprom, this route does not via a sub-sea pipeline with capacity of 32 bcm. De- seem to be feasible unless some concessions (such spite the fact that the European Commission or- as for example attractive transit fees) are proposed dered a feasibility study, no major steps to imple- to Gazprom. The route through Poland is more desir- ment the project were taken since then. able politically speaking though the interconnector between Poland and Lithuania is yet to be build.27 The development of Liquefied Natural Gas (LNG) represents an important turn in Ukraine’s gas supply di- Despite the fact that LNG supply from the Western versification efforts. Global gas market is becoming part of the Black Sea is quasi-locked, LNG could play truly ‘global’ with the arrival of affordable LNG which a role of Ukrainian linkage with the Caspian region if can be – as it is in the case of crude oil - freighted to any country with re-gasification terminals. Ukraine 25 “Ukraine plans to start 5 bcm/year natural gas pipeline project to Po- land”, platts.com, published 17 Jun 2016, http://www.platts.com/latest- 23 Alla Eremenko, Leonid Unigovskiy, Evgenij Andranov “Nuzhny li evrope- news/natural-gas/kiev/ukraine-plans-to-start-5-bcmyear-natural- ytsam ukrainskie podzemnye khranilishcha gaza?” (Do Europeans need gas-26473057 Ukrainian underground gas storage facilities? Own translation), gazeta. 26 “Ukraine asks Belarus to “Explore” Lithuanian LNG Import Possibilites, “ zn.ua, published 20 November 2015, http://gazeta.zn.ua/energy_market/ naturalgasworld.com, published 6 August 2015, http://www.naturalgas- nuzhny-li-evropeycam-ukrainskie-podzemnye-hranilischa-gaza-analiz- world.com/ukraine-belarus-to-explore-lithuanian-lng-import-possibili- potencialnoy-potrebnosti-evrosoyuza-v-phg-ukrainy-_.html ties-24876 24 “Ukrainian envoy: Natural gas storage at Turkey‘s disposal“, dailysabah.com, 27 “Lithuania Extends Polish Link Bid Period”, naturalgasworld.com, pub- published 16 May 2016, http://www.dailysabah.com/energy/2016/05/17/ lished 8 July 2015 http://www.naturalgasworld.com/lithuania-extends- ukrainian-envoy-natural-gas-storage-at-turkeys-disposal polish-link-bid-period-30497 LNG IMPORT TERMINALS IN THE BALTIC SEA*

NORWAY

ESTONIA

SWEDEN LATVIA RUSSIA DENMARK LNG IMPORT TERMINAL: KLAIPEDA, Baltic sea LITHUANIA North sea LITHUANIA KALININGRAD

LNG IMPORT TERMINAL: BELARUS ŚWINOUJŚCIE, POLAND Б Е Л GERMANY Ь POLAND ГІЯ UKRAINE

* Source: https://www.stratfor.com/sample/analysis/poland-and-baltics-find-new-energy-options

additional infrastructure is constructed. A construc- in the world) and Gazprom about the eventual re- tion of an LNG re-gasification terminal near Odessa sumption of Turkmen gas supply to Ukraine. The would help Ukraine to take advantage of developing eventual construction of the sub-sea Trans-Caspian gas production in Caucasus (notably in Georgia and in Gas pipeline with a capacity of 30 bcm linking Turk- Azerbaijan) with natural gas being liquefied in Georgia menistan and Azerbaijan would significantly ease and then shipped through the Black Sea what would Ukraine’s access to the Turkmen gas on the condi- recall the spirit of the White Stream project. 28 This tion that an LNG terminal is built in Georgia. Building means that a liquefaction terminal would have to be LNG terminal in the Georgian town of Kulevi is a part constructed in Georgia too what would necessitate of the Azerbaijan–Georgia–Romania Interconnector additional investment. This said, Georgia constitutes (AGRI) project to deliver Caspian gas to Europe via an important part of the South Caucasus Pipeline LNG shipping but for now, not more than a feasibility (SCP) that links directly to the Trans Anatolian Pipe- study has been made.29 line (TANAP). With a total capacity of 25 bcm per year, abundant gas supply from the SCP could increase the The Turkmen gas option combined with the LNG attractivity of the Ukrainian-Georgian LNG Project. supply from Northern Europe could thus represent the most realistic ways to achieve abundant gas Another option how to get the Caspian gas to supply and gas-on-gas competition in the planned Ukraine would be to negotiate with Turkmenistan hub. Ukraine should not stand idle and start its dip- (which has the fourth largest natural gas reserves lomatic and business initiative as soon as possible.

28 Andy Tully, “Can LNG Help Ukraine?”, oilprice.com, published 16 July 2015, http://oilprice.com/Latest-Energy-News/World-News/Can-LNG- 29 http://www.roconsulboston.com/Pages/InfoPages/Commentary/ Help-Ukraine.html OilEmp/AzerbaijanGas09.html 25 Policy Brief 26 Ukrainian gas hub – a chance for Europe

5. Domestic consumption must be curbed Ukrainian energy efficiency is crucial in order to to achieve energy sufficiency curb domestic gas consumption and to reach a state of gas self-sufficiency and eventually the state of Due to the Soviet legacy of abundance of natural gas gas exports. combined with the lack of innovation in the energy sector, Ukraine is one of the most energy-inten- The diminishment in gas subsidies was equally im- sive countries in the world with the lowest energy portant in order to increase transparency of Ukrain- efficiency of households in Europe. Gas constitutes ian gas sector since these subsidies represented a 31% of Ukraine’s primary energy consumption from large space for political manipulation and shady con- which only 3% are used for the electricity genera- tracts.35 The removal of this cross-subsidization of tion – the remaining 97% is used for heat genera- Ukrainian residential gas prices by cutting subsidies tion. Rozwalka and Tongendren argue in their report of Naftogaz hoped for adding more incentives to (2016) that “gas accounts for almost three-quarters the development of energy efficiency measures in of fuel consumed by both district heating compa- Ukraine. Even if diminishing state gas subsidies will nies (DHCs) and households with private heating help in economizing gas and alleviating the burden systems.”30 The district heating systems remain un- to which the state treasury is exposed, it remains reformed since the fall of Soviet Union with only however questionable whether they will really in- minimal investments in energy efficiency. centivize further promotion of energy efficiency. The consumption habits have already changed and fur- However, Ukraine’s gas market diminished consid- ther cuts in subsidies could result in a state where erably in last years. Whilst the Ukrainian gas con- households will be unable to pay for their bills.36 sumption reached 70-75 bcm in 2005, it plummeted to 50 bcm in 2013 to 42.6 bcm in 2014, 33.8 bcm in This report urges Ukraine to curb its gas consump- 2015 and it is expected that this fall in consumption tion as much as it can be promoting energy efficien- will continue even further.31. The fall in domestic cy measures, full commercial metering, implementa- consumption is due to the fact that Ukrainian gov- tion of renewable sources, and increasing public’s ernment partly diminished gas subsidies32 what re- awareness on wasting energy. If Ukraine’s domestic sulted in bigger gas prices for households and con- gas consumption is decreased to a substantial level, sequently the fall in consumption, combined with Ukraine will get free from import dependence and the military conflict on the East of Ukraine, where will even start exporting its own gas. For this pur- Gazprom supplies the conflict areas by 2-2.5 bcm pose, it is equally important to raise domestic gas annually, and which accounted for 20% of Ukrainian production as it is discussed below. gas consumption before the war33 and the annexa- 6. Domestic gas production tion of Crimea. The plummeting gas consumption is must be increased to a sufficient level also linked to the overall drop in Ukrainian economic output. Increasing Ukraine’s gas production to a sufficient level is important for two reasons: Ukraine would be Regarding future trends in domestic consumption less and reliant on foreign gas and eventual Ukrain- in Ukraine, Pirani and Yafimava argue in their report ian gas exports could in turn provide additional sup- that if an economic recovery of Ukraine starts in ply for the planned gas hub. Ukraine’s potential for 2016-2017, the consumption will rise to 40-45 bcm gas production is huge: proven gas reserves are es- in the early 2020s.34 For this reason, investing into timated at 924 bcm and potential reserves around 30 Rozwalka & Tordengren (2016) p. 4 31 Rozwalka & Tordengren (2016) p. 12 35 Rozwalka & Tordengren (2016),p. 37 32 Rozwalka & Tordengren (2016), p. 35 36 “Gas Production in Ukraine decreased by 3% in 2015”, Naftogaz.com, pub- 33 Pirani & Yafimava (2016), p. 40 lished 2 February 2016, http://www.naftogaz.com/www/3/nakweben.nsf 34 Pirani & Yafimava (2016), p. 50 /0/970478E2A71A6B0FC2257F4C00580C55?OpenDocument 5.6 Tcm.37 Yet, for almost a decade, the Ukrainian Ukraine should push now for strengthening coop- annual natural gas production has been oscillating eration between foreign leading production compa- only around 20 bcm (19.9 bcm in 2015, even after the nies and favour creating joint ventures with domes- annexation of Crimea by the Russian Federation).38 tic producers. Ukraine has already done some effort Several factors hindered the growth in gas produc- in order to attract foreign investors such as the Cab- tion, such as changing fiscal regime in 2015 by in- inet of Ministers decision to increase the transpar- creasing royalties to 55% for wells above 5 km and ency of actions for production licenses.44 It is just up 28% for wells below 5 km what effectively ham- to Ukraine to continue in such efforts in attracting pered any investments from abroad (these royalties investors: is estimated that with a proper level of in- were decreased in 2016 again into the previous lev- vestment, Ukrainian gas production may increase in els, 29% and 14%)39, corruption, and lack of transpar- ten years up to 40 bcm per year.45 ency in energy deals, restricted generally to companies linked to oligarchs.

In order to become totally independent of foreign gas import, Ukrainian Energy and Coal Minister Ihor Nasalyk at the Energy Spring 2016 Congress in Kiev to raise gas production to 27 bcm by 2020 (the estimated gas consumption volume for that year) what became the main strategy of state-owned gas company Ukrgazvydobuvannya (UGV).40

However, substantial investments are needed in order to effectively raise Ukraine’s gas production to desired levels. Most of the Ukrainian gas reserves are either depleted, small-scale or high-depth fields. Ninety percent of the proven reserves are fields with no more than 5 bcm of natural gas.41 Further- more, projects to produce 4 bcm of natural gas would necessitate investments of around 300 mil- lion USD.42 Ukrgazvydobuvannya has already started with modernization and purchase of new equipment for exploration and development drilling thanks to Chinese loans.43 Additional foreign investment is needed though.

37 “Serhiy Golovnyov, “Why Ukraine is not energy independent?“, Business Censor, published on 13 September 2016 38 “Ukraine seeks to stop importing gas by 2020 - energy minister”, In- terfax.com.ua, published 27 May 2016, http://en.interfax.com.ua/news/ economic/346178.html 39 Tax Code (02.12.2010 No. 2755-VI), Verkhovna Rada of Ukraine 40 “Ukraine seeks to stop importing gas by 2020 - energy minister”, Inter- fax.com.ua, published 27 May 2016 41 “How much largest oil and gas companies in Ukraine earn?“, Khvylia, 19 September 2016 44 “Cabinet of Ministers adopted a reform resolution at the initiative of the 42 “Is it possible to reanimate the capacity of gas production in Ukraine?“, State Service of Geology and Mineral Resources“, The State Service for ICPS, 9 September 2015 Geology and Mineral Resources, 18 April 2016 43 “Success in Ukrgazvydobuvannya reforming process“, National Reform 45 Philip Vorobyov, “Making Ukraine Europe’s new gas supplier“, Petroleum Council, 18 February 2016 Economist, 31 August 2016 27 Policy Brief 28 Ukrainian gas hub – a chance for Europe

RECOMMENDATIONS

1. A detailed study comprising design of the gas hub from the technical view should be made by the government as well as a report on cost of construction of additional infrastructure and pipelines with bi-directional flow.

2. The Gas Hub Network Code complying with laws mentioned in the report and the Third Energy Package should be developed. An Authority responsible for the gas hub management shall be established with its duties and responsibilities described in the Network Code. TSO should cooperate in the Network Code creation, as it will be important to determine duties and responsibilities of both gas hub and TSO in gas transmission.

3. Ukraine should start negotiations with exchanges on gas trading, establishment of a Clearing House for the gas hub and the possible cooperation between exchange(s) and the hub for gas balancing.

4. Ukraine should start raising awareness of countries of Central and Eastern Europe (especially Slovakia, Hungary, Poland and Czech Republic) about the benefits of gas hub and its associated trading and gas storage services. Ukraine should support all the voices and measures raised from these countries against Gazprom’s actions threatening the implementation of the Third Energy Package. Ukraine should continue in its initiative to get pipeline access to the LNG re-gasification terminals in the Baltic Sea. 5. Ukraine should start negotiations with German officials and executives in order to achieve mutual understanding of Ukrainian energy issues. Ukraine should make German public aware of the business benefits linked to gas hub trading and to convince officials that modernizing Ukrainian gas transmission system is far less costly than investing in a completely new pipeline system.

6. Ukraine should explore with Georgia possibilities for LNG shipments as well as to start negotiations on gas supply from Azerbaijan and Turkmenistan, crucial for assuring gas-on-gas competition in the planned hub. At the same time, Ukraine should also approach Gazprom as such partner, which could benefit from the development of gas hub. With the increased LNG supply from the United States and Qatar to the European markets, Gazprom may be willing to keep its market demand secure and to make some concessions.

7. Ukraine should promote energy efficiency in order to curb domestic gas consumption by raising public awareness on energy waste, introduce new tools and incentives to save energy. At the same time, Ukraine should strive for attracting foreign investment needed for increase in domestic production.

29 Policy Brief 30 Ukrainian gas hub – a chance for Europe

BIBLIOGRAPHY

Alla Eremenko, Leonid Unigovskiy, Evgenij lished 28 July 2016, https://www.ft.com/content/ news/2015/07/02/ukraine-gas-transmission- Andranov “Nuzhny li evropeytsam ukrainskie e2cf7602-5411-11e6-befd-2fc0c26b3c60 system-problems-and-prospects.html podzemnye khranilishcha gaza?” (Do Europe- ans need Ukrainian underground gas storage “How much largest oil and gas companies in Philip Vorobyov, “Making Ukraine Europe’s new facilities?), gazeta.zn.ua, published 20 Novem- Ukraine earn?“, Khvylia, 19 September 2016, gas supplier“, Petroleum Economist, 31 August ber 2015, http://gazeta.zn.ua/energy_market/ http://hvylya.net/news/digest/skolko-zara- 2016 nuzhny-li-evropeycam-ukrainskie-podzemnye- batyivayut-krupneyshie-gazodobyivayushhie- kompanii-ukrainyi.html Rachelle Toplensky, Jack Farchy, Henry Foy, hranilischa-gaza-analiz-potencialnoy-potreb- ”Gazprom and Brussels agree to settle long-running nosti-evrosoyuza-v-phg-ukrainy-_.html “Is it possible to reanimate the capacity of gas dispute”, ft.com, published 26 October 2016, htt- ”ANALYSIS OF SITUATION OCCURRED WITH RE- production in Ukraine?“, ICPS, 9 September 2015, ps://www.ft.com/content/9467b568-9b85-11e6- GARD TO THE MINISTRY OF ECONOMY’S DECI- http://icps.com.ua/chy-mozhlyva-reanimatsiya- 8f9b-70e3cabccfae hazovydobuvnoho-potentsialu-v-ukrayini/ SION TO AMEND THE CHARTER OF NJSC “NAF- Rusty Braziel, “Henry The Hub, I Am I Am – Un- TOGAZ OF UKRAINE” RELATING TO THE CON- Kostis Geropoulos, “Šefčovič : EU wants Russia’s derstanding Henry Hub: How Changing Natural TROL OVER PJSC “UKRTRANSGAZ”, Dixi Group, Gazprom, Ukraine’s Naftogaz to honour winter Gas Flows Will Impact The Benchmark“, RBN published on 16 September 2016, http://www. protocol“, neweuope.eu, published 1 Novem- Energy LLC, published on 23 September 2012, slideshare.net/uaenergy/dixi-groups-comment- ber 2016, https://www.neweurope.eu/article/ https://rbnenergy.com/henry-the-hub-i-am-i- regarding-the-situation-with-ukrtrasgaz sefcovic-eu-wants-russias-gazprom-ukraines- am-understanding-henry-hub naftogaz-honour-winter-protocol/ “Analysis of the Restructuring Options of NJSC Serhiy Golovnyov, “Why Ukraine is not energy Naftogaz“, World Bank, published on 9 February Ladka Bauerova, “Gas-Transit Deal Shows Cost independent?“, Business Censor, published on 2016, p. 95. http://documents.worldbank.org/cu- to Russia of Bypassing Ukraine”, bloomberg.com, 13 September 2016, http://biz.censor.net.ua/ rated/pt/928071468185344153/Analysis-of-the- published on 5 June 2015, http://www.bloomb- resonance/3011325/pochemu_ukraina_ne_dela- restructuring-options-of-NJSC-Naftogaz erg.com/news/articles/2015-06-05/slovak-gas- etsya_energonezavisimoyi Andrew Ward and Laura Pitel, “Russia and Tur- transit-deal-shows-bypassing-ukraine-will- cost-russia “Ukraine asks Belarus to “Explore” Lithuanian key agree gas pipeline deal”, ft.com, published LNG Import Possibilities”, naturalgasworld.com, on 10 October, 2016, accessed on 10 October Leonid Bershidsky, “How Ukraine Weaned Itself published 6 August 2015, http://www.natural- 2016, https://www.ft.com/content/52c05b6e- Off Russian Gas”, Bloomberg View, published on gasworld.com/ukraine-belarus-to-explore-lith- 8f1f-11e6-a72e-b428cb934b78 12 Jan 2016, accessed on 10 October 2016, https:// uanian-lng-import-possibilities-24876 “Cabinet of Ministers adopted a reform resolu- www.bloomberg.com/view/articles/2016-01-12/ how-ukraine-weaned-itself-off-russian-gas “Ukraine’s Gas Sector Reform: A Future Win- tion at the initiative of the State Service of Ge- Win for Ukraine and Europe“, Policy Brief by DiXi ology and Mineral Resources“, The State Service “Lithuania Extends Polish Link Bid Period”, natu- Group, published 10 May 2016, http://dixigroup. for Geology and Mineral Resources, 18 April 2016 ralgasworld.com, published 8 July 2015 http:// org/eng/publications/ukraines-gas-sector- “Conceptual design for a virtual gas hub(s) www.naturalgasworld.com/lithuania-extends- reform-a-future-win-win-for-ukraine-and-eu- for the east coast of Australia”, FTI Consult- polish-link-bid-period-30497 rope/ ing, December 2015, http://www.aemc.gov.au/ Mariia Melnyk, ”Opal rozbratu. Navisho Yevrosoy- ”Ukraine: Law on Energy Regulator Finally getattachment/98035b44-a513-4d34-a5a0- uz pidihrav antiukrayinskym planam ”Gazpromu“, Adopted”, cms-lawnow.com, published on 7 9048b7166db3/FTI-Consulting-%E2%80%93- Yevropeyska Pravda, published 4 November October 2016, http://www.cms-lawnow.com/ Conceptual-design-for-a-virtual-g.aspx, p. 37, 38 2016, http://www.eurointegration.com.ua/arti- ealerts/2016/10/ukraine-law-on-energy-regula- ”Estonia, 7 other countries send letter to Juncker cles/2016/11/4/7056945/ tor-finally-adopted on Nord Stream 2”, news-postimees.ee, pub- Maurice Vos, Bert Kiewiet and Konstantin “Ukrainian envoy: Natural gas storage at Tur- lished 17 March 2016, accessed on 8 October Petrov, “Gas Transmission Pricing Models For key’s disposal“, dailysabah.com, published 16 2016, http://news.postimees.ee/3622797/esto- Entry-Exit Systems and Implementation Op- May 2016, http://www.dailysabah.com/en- nia-7-other-countries-send-letter-to-juncker- tions“, http://crninet.com/2013/2b.%20Kiewiet- ergy/2016/05/17/ukrainian-envoy-natural-gas- on-nord-stream-2 Paper.pdf storage-at-turkeys-disposal “EU shippers avoid Ukrainian gas storage N. Prytula, R. Boroviy, M. Prytula, O. Khym- “Ukraine plans to start 5 bcm/year natural gas as no exit tariffs set“, icis.com, published 19 ko, “Matematichna model Bilche-Volitskoho pipeline project to Poland”, platts.com, published July 2015, http://www.icis.com/resources/ Pidzemnoho Skhovyshcha Hazu (Mathematic 17 Jun 2016, http://www.platts.com/latest- news/2016/07/19/10017297/eu-shippers-avoid- Model of the Bilche-Volytsko-Uherske storage, news/natural-gas/kiev/ukraine-plans-to-start- ukrainian-gas-storage-as-no-exit-tariffs-set/ own translation), 2010, accessed on October 12, 5-bcmyear-natural-gas-26473057 “Gas Production in Ukraine decreased by 3% in http://www.nbuv.gov.ua/old_jrn/natural/Vnulp/ Komp-nauky/2010_686/27.pdf “Ukraine seeks to stop importing gas by 2020 - 2015”, Naftogaz.com, published 2 February 2016, energy minister”, Interfax.com.ua, published 27 http://www.naftogaz.com/www/3/nakweben. Patrick Heather, “The evolution of European May 2016, http://en.interfax.com.ua/news/eco- nsf/0/970478E2A71A6B0FC2257F4C00580C55? traded gas hubs”, The Oxford Institute for En- nomic/346178.html OpenDocument ergy Studies (2015), https://www.oxfordenergy. Vitalii Rybak, “Alan Riley: «Ukraine could be “Gas Storage”, utg.ua, http://utg.ua/en/utg/gas- org/wpcms/wp-content/uploads/2016/02/NG- 104.pdf the main gas storage facilitator for the East- transportation-system/underground-gas-stor- Central Europe», ukrainianweek.com, published age.html, accessed 8 October 2016. Patrick Heather, “The Evolution and Function- 14 March 2016, http://ukrainianweek.com/ “Gazprom tries to discourage Europe to use ing of the Traded Gas Market in Britain”, The Ox- World/160497 ford Institute for Energy Studies (2010), https:// Ukrainian underground gas storage facilities”, Simon Pirani and Katja Yafimava, “Russian Gas europeandialogue.eu, published 3 July 2013, www.oxfordenergy.org/wpcms/wp-content/ uploads/2016/02/NG-104.pdf Transit across Ukraine Post-2019: pipelines http://www.eurodialogue.eu/Gazprom-Tries-to- scenarios, gas flow consequences, and regula- Discourage-Europe-to-Use-Ukrainian-Under- Piotr Rozwałka, Hannes Tordengren, “The tory constraints, The Oxford Institute for Energy ground-Gas-Storage-Facilities Ukrainian residential gas sector: a market un- Studies (February 2016), https://www.oxforden- Georgi Gotev, ”Sefcovic embarks on third trilat- tapped”, The Oxford Institute for Energy Studies ergy.org/wpcms/wp-content/uploads/2016/02/ eral gas talks on Ukraine”, euractiv.com, pub- (July 2016), https://www.oxfordenergy.org/wp- Russian-Gas-Transit-Across-Ukraine-Post- lished on 31 August 2016, accessed 30 Septem- cms/wp-content/uploads/2016/07/The-Ukrain- 2019-NG-105.pdf ber 2016, https://www.euractiv.com/section/ ian-residential-gas-sector-a-market-untapped- energy/news/sefcovic-embarks-on-third-trilat- NG-109.pdf eral-gas-talks-on-ukraine/ Pyotr Vorobyov, “Ukraine’s Gas Transmission Henry Foy, Jack Farchy, “Nord Stream 2 pipeline System: Problems and Prospects”, strategic-cul- risks delays due to Polish hurdle”, ft.com, pub- ture.org, published on 2 July 2015, accessed on 17 October 2016, http://www.strategic-culture.org/ [email protected]