UPDATE 2-Slovakia offers way to send Ukraine some gas if Russia cuts supply

Tue Apr 15, 2014 2:06pm EDT

* Agreed to sign memorandum on April 28

* Ukraine looks to EU as Russia could cut supplies

* EU could provide maybe 14 bcm of Ukraine's annual gas use of over 50 bcm (Updates with memorandum signing date, quotes, details)

By Jan Lopatka

VELKE KAPUSANY, Slovakia, April 15 (Reuters) - Slovakia, Ukraine's best hope of getting gas from Europe if the Kremlin halts supply, said it might help by reopening a small pipeline but stopped short of agreeing to reverse the flow of major links that take Russian gas to the European Union.

Russia has annexed Ukraine's Crimea region and is voicing support for pro-Moscow separatists in the country's east.

Moscow has also nearly doubled the natural gas price it charges Ukraine, tearing up a discount agreed in the past and stoking fears of a supply cut as Kiev owes Russian exporter Gazprom more than $2 billion.

That could affect gas for Europe piped through Ukraine as well and has prompted the European Union to seek ways to help Kiev, although the potential volumes involved are small compared with Ukraine's needs.

On Tuesday the Slovak and Ukrainian economy ministers, during talks near the border between their two countries, discussed reopening a disused pipeline to take some gas out of a main East-West line and loop it back into Ukraine.

But Slovakia failed to agree to Kiev's calls for it to reverse the flow of one of four main international pipeline carrying Russian gas so that the fuel goes straight back into Ukraine, its minister, Tomas Malatinsky, said during a break in the talks with Ukrainian counterpart Yuri Prodan.

The Slovaks worry that doing so might violate their contracts with Gazprom.

But by taking gas out of the main pipeline once it is already in Slovakia and contractually handed over to buyers on the Slovak side, the country's pipeline operator Eustream thinks it can supply gas to Ukraine without violating the contracts.

"Several options were opened over reverse flows. We are working on an option which needs to be discussed further before signing a memorandum," Malatinsky told reporters at a border pumping station where talks were being held.

A spokesman for the Slovak Economy Ministry said after the talks ended that they agreed to sign a memorandum on April 28.

The Ukrainian minister said the disused pipeline solution would not guarantee nearly enough gas.

"The memorandum which is prepared is a certain step toward reverse supplies from the European Union, but I am saying openly that given the situation - a very exceptional situation - we would need substantially more."

Combined, Ukraine's EU neighbours could provide a maximum of about 14 billion cubic metres (bcm) of gas per year to Ukraine, or more if Russian flows could be reversed, against an annual requirement of about 55 bcm.

Ukraine has proposed reversing gas flows on one of four pipelines that carry Russian gas to Europe via Slovakia.

This option would take advantage of unused capacity, be easier and quicker to implement because no construction is needed, and is a chance for Ukraine to receive higher gas shipments, Prodan said.

"Together with what we have (agreed) with Hungary and Poland, that would give us certain security," he said.

Prodan said the proposal on the unused pipeline, along with the legal and technical possibilities of reverse flows, would be further discussed.

SLOVAK PROPOSAL

The disused pipeline Slovakia is examining runs between its Vojany power station and a storage site in Uzhorod, Ukraine.

The idea would require building a short connector into the main Slovak transit pipeline on the Slovak side of the Velke Kapusany pumping and metering border station. The link could supply more than 3 bcm annually to Ukraine from October, rising to around 9 bcm by next spring.

By comparison, about 1.5 bcm could be delivered to Ukraine via Poland and about 3.5 bcm annually through Hungary. German utility RWE began deliveries of natural gas to Ukraine via Poland on Tuesday.

Klaus-Dieter Borchardt, director of the Internal Energy Market in the energy department of the European Commission, who also took part in the talks on Tuesday, said the Slovak proposal was a good step forward.

"The European Commission calls on the two transmission system operators...to sign this memorandum of understanding as soon as possible and to implement it as soon as possible."

Regarding Ukraine's proposal for reversing flows, he said: "We welcome the proposal of our Ukrainian partners that was proposed today ...Technically it could be a short-term solution for this year but we still have to analyse some legal issues that might be linked to this solution." (Writing by Jason Hovet; editing by Jason Neely and Anthony Barker)