Slovak imports seen as drop in a bucket for Ukraine gas needs

Fri Nov 22, 2013 4:26am EST

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* Most gas would be Russian re-exports from Europe

* But reverse flow capacity from EU to Ukraine is limited

By Michael Kahn

PRAGUE, Nov 22 (Reuters) - A potential deal that would allow Slovakia to ship natural gas to Ukraine packs more of a political punch than actually bringing much short-term relief in easing Ukraine's reliance on Russian supplies, experts and analysts say.

Pipeline operators in Ukraine and Slovakia are on the verge of signing a deal that would allow the European Union to deliver gas through Slovakia to Ukraine, reducing Kiev's dependence on Russia.

Yet the gas, which would be pumped by reversing usual pipeline flows, would represent only a drop in the bucket in meeting Ukraine's roughly 53 billion cubic metres (bcm) of annual gas consumption.

"In terms of numbers the impact is quite limited in the short term," said Graham Freedman, a gas analyst at Wood Mackenzie in London. "Having an additional link is a good thing but it offers very limited support to a quite big Ukrainian market."

Ukraine imported some 40 bcm last year from Russia, which wants to maintain its influence over the former Soviet republic and fend off European Union efforts to limit Moscow's sway.

Disputes between Russia and Ukraine have previously led to supply disruptions to the EU, including in 2009 when hundreds of thousands of homes went without heat in freezing temperatures. A renewed row this year has raised fears that outages could happen again.

Ukraine began importing gas through reverse flows from Poland and Hungary in 2012 but experts say the amounts so far have totalled less than 2 bcm annually.

"What they get in from Poland and Hungary is (a small part)of the market," Freedman said. "What they would get from Slovakia would not make a huge dent in the Ukrainian market."

EUROPE COURTS UKRAINE

The European Union has been courting Ukraine with the idea that the country could become a gas hub, rather than just a transit state that depends on Russia as a dominant supplier.

Since late last year, technology allowing pipeline flows to be reversed has allowed Ukraine to re-import some Russian gas from EU nations, notably Hungary and from Germany via Poland.

While the amounts have been small, other experts say the reverse flows are important politically because they challenge Russian Gazprom's dominance as supplier to Ukraine.

"It is a first milestone in breaking dependency on a sole source of supply even if the gas supplied in reverse direction could be (from) Gazprom but re-sold by RWE," said Anna Bulakh, a fellow at the International Centre For Defence Studies in Estonia who tracks gas flows, referring to the German utility.

Neither Slovak nor Ukrainian officials have said how much gas might flow, but any deliveries in the short term would likely be Russian re-exports from the Nord Stream pipeline that links Russia directly with Germany.

The gas would likely enter Ukraine through a currently unused Soviet-era pipeline as well as a smaller one yet to be built.

Any reverse flows are also not expected to impact the 90 bcm of annual capacity of the Slovak pipeline system, which equals roughly 15 times the country's domestic consumption and is the gateway for Ukrainian supplies to the 28-country EU.

"The reality is that Slovakia is just as dependent on Russian gas as Ukraine," said Oliver Sanderson, a gas analyst at Thomson Reuters Point Carbon, adding that future supplies for Ukraine might come from shale gas in Poland or a planned liquefied natural gas terminal on the country's Baltic Sea coast.

"Any difference reverse flow from Slovakia could make is very limited at the moment." (Reporting by Michael Kahn, Editing by Henning Gloystein and Dale Hudson)

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