Russia’s new pipeline to Europe, Nord Stream 2, will cost Ukraine $3 billion in lost transit fees for piping Russian gas across its territory, a Ukrainian official reckons.
But the project harms not only Ukrainian economy – it threatens European security too, Andriy Kobolyov, CEO of Ukrainian state oil and gas company Naftogaz, said on a panel devoted to the Nord Stream 2 project at the Yalta European Strategy in Kyiv on Sept. 15.
“I believe that within two years the pipeline will be completed,” Kobolyov said. “And as soon as it happens, all calculations show that gas transit through Ukrainian territory will stop.”
Previously, Russian gas monopoly Gazprom said that Ukraine could remain a transit route if the country suggested competitive conditions. However, Kobolyov believes this is unlikely.
“I always smile when people say that Ukraine will be competing with Nord Stream 2 through tariffs and conditions, that this is not a lost battle. No, it is a lost battle,” he said. “At the time when (the first) Nord Stream was built (in 2012), Ukraine already had the lowest tariffs.”
However, Nord Stream 2 isn’t only Ukraine’s issue. It is a threat to European security, Kobolyov said, as the Kremlin might use the pipeline to exert influence and increase its military presence, as has happened in the Azov Sea. After Russia opened the Kerch bridge connecting Ukraine’s Russian-occupied Crimean peninsula and Russia in May, Russian security forces used security reasons as a pretext to stop and inspect all vessels going to Ukrainian ports.
“Today Russia needs a transit route to deliver its gas to Europe, and it is the only factor that pressures Kremlin to maintain at least some stability in the east,” Kobolyov said. “Once Nord Stream 2 is launched, the Ukrainian gas transport system won’t be a deterrent.”
The European Union heavily relies on imports of gas, and a third of it comes from Russia.
Nord Stream 2 is slated for completion at the end of 2019, at the same time Gazprom’s gas transit contract with Ukraine’s Naftogaz expires. The Gazprom subsidiary that is building the pipeline reportedly has received permits from four out five countries whose territory the pipeline is to go through – Finland, Germany, Sweden, and Russia.
“There is an issue with the permit from Denmark, but we have a plan to solve it,” Gazprom CEO Alexei Miller said at a press conference in Moscow on June 29.
Once built, the 1,200-kilometer pipeline will double the capacity of the existing Nord Stream 1 to 110 billion cubic meters of gas per year, delivered from gas fields in Siberia to Greifswald in Germany. From there, it will be sold to other countries.
Another issue raised by the Deputy Foreign Minister of Ukraine Olena Zerkal on the same panel at the Yalta European Strategy conference was EU internal energy market legislation. The so-called Third Energy Package doesn’t extend to offshore gas pipelines such as Nord Stream 2.
EU lawmakers have split opinions over the pipeline. The Baltic and Eastern European states fear increased dependency on Russia and are demanding amendments to the Third Energy Package so that its legislative power covers Nord Stream 2. Meanwhile, Germany, the main backer of Gazprom’s pipeline, defends it as a purely commercial project.
“There are a few scenarios,” Zerkal said. “Either Germany, as a buyer, offers Ukraine to transit some amount of gas, or we promote fair treatment of all kinds of pipelines and the rules of the Third Energy Package (so they are) applicable to Nord Stream 2.”