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    Gas pipeline station workers passing the gas pressure engines in Zakarpattia region, Western Ukraine

    Berlin Trying to Sneak Ukraine Gas Transit Guarantees into Nord Stream II Deal

    © AP Photo/ Sergei Chuzavkov
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    As negotiators prepare to put the finishing touches on the financing model for the Nord Stream II gas pipeline project, Berlin has thrown a small wrench in the works, insisting that Moscow preserve its gas transit deal with Kiev.

    In an interview for Russian media ahead of his visit to Moscow earlier this week, German Foreign Minister Sigmar Gabriel said that Germany would support Nord Stream II, a proposed offshore natural gas pipeline stretching from Russia to Germany through the Baltic Sea, but only if it gets assurances from Moscow that it would preserve its gas transit agreements with Ukraine.

    "We need Nord Stream II, but we also need the reliability of Ukrainian gas pipelines, and the reliability of energy supplies to countries such as Slovakia, the Czech Republic and Poland," Gabriel said. "I sense that our Russian partners are quite prepared for that," he added.

    By all accounts, the foreign minister's remarks were aimed at quelling growing fears in Kiev that it may be permanently deprived of its status as a transit country for Russian energy supplies to Europe, a lucrative position which brings an estimated $2 billion in to Kiev's coffers every year. 

    Russian gas giant Gazprom has made no secret of its efforts over the last few years to bypass Eastern European transit states via several offshore pipeline projects, including Nord Stream II, Turkish Stream, and South Stream, the last of which was shot down by Brussels in 2014.

    According to the Russian company, Nord Stream II's benefits include what is effectively a guarantee that transit states will not be able to take politically-motivated measures to blackmail Russia or Western European customers by simply turn off the taps. Gazprom has had a series of disputes with Ukraine over many years over the use of its pipeline network, with Kiev repeatedly threatening to shut off transit to Europe and demanding that Moscow offer it reduced prices for gas in exchange.

    The planned Nord Stream 2 project
    The planned Nord Stream 2 project

    Last week, Gazprom CEO Alexei Miller again reiterated that "the risks to stable supplies of Russian gas to European consumers through Ukraine remain," and that this situation is a "cause for concern." Ukraine's gas reserves have been dwindling, Miller noted, and Gazprom is concerned that Kiev may end up dipping into supplies bound for Europe.

    In 2015, Kiev stopped buying gas from Russia altogether, factually ending its price disputes with Gazprom. Instead, it has decided to import gas from European countries, at a cost of over 20% more than it would have paid for the Russian gas. The absurdity of that situation is highlighted by the fact that the 'European' gas Kiev buys consists mostly of Russian supplies pumped into Europe and then sold back to Ukraine at marked up prices.

    Nevertheless, Kiev remains interested in preserving the estimated $2 billion it receives via transit fees. Ukrainian officials and lawmakers have warned that the loss of the country's transit status would turn it into a "logistical backwater." Ukraine's current transit contract with Gazprom ends in 2019. 

    Ukrainian gas pumping station at Volovets in western Ukraine (File)
    © AP Photo/ Pavlo Palamarchuk
    Ukrainian gas pumping station at Volovets in western Ukraine (File)

    Russian political and economic analysts have their own perspective on the implications of Gabriel's remarks. In an interview for Expert.ru, market analyst Kirill Yakovenko explained that Berlin's apparent decision to tie Ukraine's transit nation status to Nord Stream II was predictable, and associated with political factors, not economic ones. The requirement, he noted, is based on the continued, slow-moving effort to engage Kiev in European integration. Following Washington's recent moves to distance the US from Ukraine, Brussels is now the sole remaining patron and investor in Ukraine's present authorities.

    An economic element was also present, Yakovenko said. Brussels, according to the analyst, is fully aware that an end to Ukraine's transit status would only increase its dependence on Western economic assistance. The IMF, he said, is already the last major foreign entity willing to loan Kiev money via its tranche loans, and the EU and the US are the largest donors to the IMF.

    Ultimately, Yakovenko suggested that even if Berlin takes a firm stand on preserving Kiev's transit status, and Moscow refuses the demands, the political energy to try to prevent Nord Stream II's implementation will gradually exhaust itself, particularly as Europe's faith in Ukraine continues to fall. A 1-2 year delay would be perfectly tolerable for such an ambitious project, the analyst noted, particularly given the complex financial and legal framework that must first be developed to implement it.

    ETERNO shop of the Chelyabinsk Pipe-Rolling Plant
    © Sputnik/ Sergey Guneev
    ETERNO shop of the Chelyabinsk Pipe-Rolling Plant

    Last week, Nord Stream II project financial director Paul Corcoran told RIA Novosti that a deal to attract funds for the construction of the pipeline may be reached by the middle of 2018, with 70% of the financing coming from external funds, including banks and other institutions. This, Corcoran recall, was the same model employed to fund the first Nord Stream pipeline in 2011.

    Also last week, Nord Stream II chief commercial officer Reinhard Ontyd said that the project expects to get an EU construction permit in the first quarter of 2018. On Wednesday, Wintershall CEO Mario Mehren indicated that a funding model for the project may be completed by mid-2017.

    Related:

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    Nord Stream 2 Funding Model May Be Determined by Late June
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    EU's Move to Kill South Stream Cost Southeastern Europe Future Energy Security
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    expert commentary, conditions, Nord Stream, Sigmar Gabriel, Germany, Europe, Ukraine, Russia
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    • avatar
      marcanhalt
      Ukraine's corrupt leaders have forgotten the warning why greedy men will no more get into heaven than the camel will be able to pass through the eye of the needle. It is sad that men like this, as well as a Soros, already have their rewards, but it won't buy them one drop of even salty water where they are going.
    • avatar
      topolcats
      The situation is inherently clear that the Ukrainian Gov is a Government of Fascist and Nazi supported by the Government of Germany.
      The only conclusion you can reach is the Government of Germany are secretly a Government of Fascist and Nazi equal to her Nazi Past !!
    • siberianhusky
      Who care what the Germans want. This is economic 1 o 1 as long as the dumb Ukies pay the full price for the gas plus all the outstanding debts to Russia who cares if they get the gas or not. If not stop the gas flow and let not only the Ukies freeze but also the dumb Germans who proposed this dumb deal.
      Just like the consumer the Ukies get the monthly bill that has to be paid in full EVERY TIME. If not no gas.
    • avatar
      Erik Trete
      Turkstream is a go, If Germany blocks Nordstream2, then Germany will find itself dealing with gas shortages while southern Europe will be supplied via the Turkish hub. Ukraine meanwhile will be holding out their empty hands to Germany for another 2 billion.
    • avatar
      jasin reply toErik Trete(Show commentHide comment)
      Erik Trete, We wil see if the West owns Erdogan or not. If they don't, he will jump at the chance to be a primary gas hub for all of Europe. He can't be much worse than Ukraine. If Ukraine is included, there is no point in doing anything but look for buyers of the gas other than in Europe.
    • avatar
      tobi.gelando
      The last think the Eu / Germany can do is to black mail Russia !!!
      Eu / Germany has still not learn you cant black mail Russia !!!
    • sapper
      Germany doing the will of it's slowly departing master the US???
    • avatar
      corp
      How pathetic. You support the overthrow of a government install a corrupt regime in Ukraine. Then you a have the hide to try and tell Russia to continue to to business with Ukraine even though they will not work to bring peace to East Ukraine and Kiev continues to cry crocodile tears over Crimea even though 95% plus people even the Tartars want to stay with Russia and only ask Ukraine to stop cutting water and power supplies.

      The fact that NATO supports Kiev aligns them with barbarism. Just pathetic.
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