Is the gas crisis resolved? Russia and Ukraine say yes

IT SEEMS that the pulse of Slovakia’s economy will return to its normal beat: on January 19 the country was fed natural gas supplies from the Czech Republic while Russia and Ukraine promised to also end their dispute over gas and start meeting their contractual obligations with European countries.

IT SEEMS that the pulse of Slovakia’s economy will return to its normal beat: on January 19 the country was fed natural gas supplies from the Czech Republic while Russia and Ukraine promised to also end their dispute over gas and start meeting their contractual obligations with European countries.

The Russian-Ukrainian tug-of-war over gas deliveries to European countries has so far cost Slovakia, which has had its gas supplies from Russia cutoff since January 6, suspended production at several large companies, a controversial attempt to restart one of the reactors at the recently moth-balled V1 nuclear power plant in Jaslovské Bohunice (see adjacent story) and doubts raised about the adequacy of the country’s gas reserves.

The European Commission said it welcomed the progress achieved in talks between Russia and Ukraine. However, the commission and its Czech presidency chose to remain rather skeptical at least until there is actual gas flowing to its member states.

“Over the past few days we have seen several similarly hopeful moments,” said Czech Minister of Industry and Trade Martin Říman, according to an official EC release. “The only thing that counts for the EU is the resumption of gas supplies. For the time being it is not clear when this resumption will take place.”

Over the weekend, the Slovak government negotiated with Slovenský Plynárenský Priemysel (SPP) and its major shareholders, the German company E.ON Ruhrgas and France’s GDF Suez, to get supplementary gas supplies from the Czech Republic.

“This temporary solution will allow us to supply gas to all the customers in Slovakia,” said Bernd Wagner, the chairman of the board of directors of SPP, Slovakia’s main natural gas utility.

On January 18, Slovakia’s crisis committee rescinded the restrictions on natural gas usage, which had been in place since January 6, requiring large commercial customers and businesses whose contracted gas consumption exceeds 60,000 cubic metres per year to reduce their usage to a minimum safety level.

The SPP also said that the restrictions were lifted because a transfer of natural gas to Slovakia operated for the first time in reverse, meaning from the Czech Republic in the west to Slovakia in the east.

“We are launching industrial operations at full speed,” Economy Minister Ľubomír Jahnátek said, as quoted by the SITA newswire.

The gas thug-of-war

Slovakia has spent the last week on the front line of the gas conflict between Russia and Ukraine.

Slovakia’s prime minister, Robert Fico, flew to Kiev and Moscow on January 14 in a bid to get the gas flowing again. He held talks with Yulia Tymoshenko, Ukraine's prime minister, and Russian Prime Minister Vladimir Putin.

Fico returned from Russia and Ukraine with the message that gas supplies would not be resumed very soon. However, Fico did suggest a gas swap operation as a temporary solution, which the Russian gas company Gazprom said was doable.

Prime Minister Putin openly admitted during his talks with Fico that there is a bilateral conflict between Russia and Ukraine to which some European Union countries are hostage, the press office of the Slovak Cabinet said on January 14.

Fico, however, stressed that Russia has a legal contract to supply Slovakia with gas, that it pays world prices for it and that the gas must transit the territory of Ukraine, the press department said.

“The conflict has a political dimension and it seems that the European Union is not able to immediately solve it,” Fico told a press conference on January 14. Nor can the involved states, Russia and Ukraine, solve it and thus the renewal of supplies within 48 hours or so is practically impossible, he added.

Fico, who was accompanied by foreign affairs minister, Ján Kubiš, suggested to Russia and Ukraine a gas swap operation, which might secure immediate supplies for Slovakia.

“Ukraine could practically, within a couple of hours, [start transferring] to Slovakia’s territory 20 million cubic metres of gas daily from its storage sites, which are filled and located near to the Slovak borders, under the condition that Russia pumps the same amount into Ukraine’s internal network,” Fico told journalists, as quoted by the SITA newswire.

The head of Gazprom, Alexei Miller, confirmed on January 14 that the company would be able to pump to Ukraine the same amount of gas that Slovakia needs, approximately 20 million cubic metres daily,” according to the Reuters newswire.

Wagner of SPP agreed that a swap could work. “The swap operation could be implemented very quickly. We need only the agreement of Russia and Ukraine to do so,” he said on January 14.

During the crisis, Slovak officials have been releasing differing and often contradictory information about the extent of Slovakia’s gas reserves, how long these are likely to allow Slovakia to continue without having to limit gas supplies to households, schools, hospitals and public institutions.

On January 14, the state secretary at the Economy Ministry, Peter Žiga, announced that Slovakia should have enough gas to last until the end of January. SPP confirmed this estimate to the media.

SPP has managed to secure additional supplies of gas from E.ON Ruhrgas and France’s GDF Suez.

Thanks to the company’s gas procurement and technical infrastructure it is also in a position to carry on providing backup deliveries for Central and Eastern European countries, Adrian Schaffranietz, a spokesman for E.ON Ruhrgas, told The Slovak Spectator on January 14.
“Partly via subsidiaries, E.ON Ruhrgas is supplying additional volumes to Croatia, Bosnia and Herzegovina, Hungary, Serbia and Slovakia,” Schaffranietz said.

E.ON Ruhrgas also called on Russia and Ukraine to reach agreement without delay on building up pressure in the transit pipeline and thus resuming gas transmission across Ukraine to Europe.

“Since 8:00 we have been using an additional 2 million cubic metres of gas daily, which our shareholders E.ON Ruhrgas and GDF Suez are providing,” SPP chairman Bernd Wagner said on January 14.

Hungary and Poland offered gas deliveries to help Slovakia as well. The Economy Ministry said it has been assessing these offers in terms of their relevance.

What the energy experts say

Observers agree that the present conflict between Russia and Ukraine, and the consequent gas crisis, demonstrates the depth of the problems between the two countries.

“The conflict has never been primarily a commercial one but has always had a strong political dimension: gas is just the area where the conflict between Moscow and Kiev has shown up most significantly,” Karel Hirman of the Slovak Innovation and Energy Agency, which is a subsidiary of the Economy Ministry, told The Slovak Spectator.

According to Hirman, the European Union is in a complicated situation as well and in order to ensure that some of its member states receive gas to heat households and allow factories to work it must present a tough and unified stand towards Moscow and Kiev.
He noted that Slovakia does not know the details of the existing contracts between Russia and Ukraine.

Hirman suggested that if it were a commercial dispute then a regular way to solve it would have been an arbitrage proceeding.

“The fact that this has not happened is caused by the fact that the contracts are non-transparent and do not meet the standards regularly used in the European gas industry,” Hirman said.

Vojtech Hollan of the Energy Centre, a non-profit organisation, said that Slovakia is now experiencing what it actually means for a country to be 90-percent dependent on importing energy sources.

“We now have the opportunity to recognise that our near-monopoly supplier of energy, such as gas, oil and nuclear fuel, is a state with which we have regular business and diplomatic relations, which is to say that it is not our ally and it obviously does not have a moral obligation towards Slovakia,” Hollan told The Slovak Spectator.

According to Hollan, in the area of fossil fuels Slovakia’s options for diversification are very limited since Russia is very active and successful in dealing with Slovakia’s most obvious alternative suppliers, which are countries in the Caspian region or North Africa.

“We have no other option but to change our approach and start using what we have at home, most importantly biomass, which could help us to solve, most importantly, the crisis in heating,” Hollan said.

“Heating is precisely the energy sector which is significantly dependent on natural gas: Slovakia is among the most gas-dependent countries in the world.”

Today this no longer seems to be such an advantage as it did 10 years ago, he said.

Hollan also suggested that there are unused possibilities from geothermal energy, which is accessible across approximately one quarter of Slovakia’s territory. He is convinced that renewable energy sources could be used by industry as well.

“An interesting solution could be the use of solar collectors for securing a supply of hot water not only for the food industry, hotel industry, health care or social services but also operations which demand a lot of hot water,” he said.

Ľuba Lesná contributed to this report

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