UPDATE 2-Ukraine faces huge gas transit losses by 2015

Fri May 27, 2011 12:43pm EDT

Related Topics

* South Stream to be 2/3 filled by existing Russia supply

* Implies gas to be diverted from Ukraine, Belarus, or both

* South Stream says Ukraine gas transit will be "tangible"

* Ukraine earned $1.3 bln from Russia gas transit in 2010

(Recasts lead, adds details, analyst quotes, background)

By Jessica Bachman and Pete Harrison

MOSCOW/BRUSSELS, May 27 (Reuters) - Russia's Nord Stream and South Stream pipelines could deprive Ukraine of the equivalent of two-thirds its gas transit volumes when they start up, threatening the country with significant losses in revenues.

Russia supplies Europe with one quarter of its gas needs and 80 percent of that gas is delivered via Ukraine. The remaining volumes travel through another western neighbour, Belarus.

Russia has assured Ukraine that Nord Stream, its first gas pipeline to Europe that skirts ex-Soviet transit countries, will not affect its transit volumes. These totalled 95.4 billion cubic metres (bcm) in 2010, providing the state gas company, Naftogaz, with $1.3 billion in net gas transit profit.

But statements made this week in Europe show that both Nord Stream, slated for launch later this year, and the $21.5-billion South Stream pipeline that aims to transport up to 63 bcm under the Black Sea to central and southern Europe, could take away a large chunk of Ukraine's gas transit flows.

Russia has a history of rocky energy relations with both its western neighbours, with a pricing dispute in January 2009 cutting off transit supplies across Ukraine to Europe for nearly three weeks.

The subsea pipeline projects amount to an attempt to diversify Russia's export routes and reduce Moscow's reliance on good relations with Ukraine and Belarus.

NOT ENOUGH GAS TO GO AROUND

The CEO of Russian pipeline gas export monopoly Gazprom (GAZP.MM) said on Wednesday in Brussels that the Russian gas export monopoly plans to redirect 20 bcm of gas transported through Ukraine to Nord Stream, which runs under the Baltic Sea to Germany. [ID:nLDE74O27O]

Meanwhile a South Stream presentation showed that the pipeline will be two-thirds filled by gas to meet existing Russian supply commitments, implying that this volume will be cut from either Belarus, or Ukraine, or both.

"With just Nord Stream alone, Ukraine could be left with 50-55 bcm to transit by 2015. But if South Stream is brought into the picture, it will be whittled down to nothing. Ukraine and Belarus will be fighting for the small volume there is left," said Mikhail Korchemkin of East European Gas Analysis.

South Stream denies it will entirely replace flows via Ukraine.

"Even when South Stream and Nord Stream projects are put into operation, the share of Ukraine in the Russian gas transit capacities to the EU will be tangible," said a presentation delivered by South Stream Chief Executive Marcel Kramer to European Union officials on Wednesday.

Kramer had been seeking to soothe European fears of increasing dependence on Russian gas by saying only one-third of the pipeline's capacity was for new volumes of Russian gas.

But in doing so, he raised questions about which pipelines the other 42 bcm would be diverted from.

"Up to two thirds of South Stream gas pipeline full capacity -- serving existing EU gas demands," said Kramer's presentation slides, seen by Reuters on Friday.

Bohdan Sokolovsky, a Ukrainian gas expert and former energy envoy to ex-president Viktor Yushchenko, told Reuters that Ukraine received $3 billion in 2010 in gas transit revenue for the 95 bcm it shipped to Europe, but that $1.6 billon was used to buy extra gas to support its compressor stations.

For a FACTBOX on Russian gas supplies to Europe via Belarus click [ID:nLDE6BN08I] (Additional reporting by Pavel Polityuk in Kiev; writing by Jessica Bachman; editing by Anthony Barker)

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