Sergiy Makogon: The last cubic meter of Russian gas should go through Ukraine not Nord Stream 1

One of our proposals to Europe to increase the security of supply is to impose sanctions on Nord Stream 1. The gas should flow through Ukraine. It would increase Russian dependence on Ukraine. We can easily transit more with ample free capacities – states Ukrainian gas transmission system operator GTSOUA boss Sergiy Makogon to BiznesAlert.com.

BiznesAlert.pl: Most of gas supplies to Europe still flow through Ukraine. Is there a risk that Russia will completely stop supplying gas via your country?

Sergiy Makogon: We still provide about 20-25 percent of total gas supplies to Europe and despite these tough circumstances we do our best to maintain transit. We believe that the transit offers us some safety. We do not have alternative routes for local deliveries. Thanks to the transit we can at least have some theoretical guarantees that Russians will not destroy our infrastructure intentionally. We have a very flexible and agile infrastructure. We are absolutely capable of transferring gas to Europe. Unfortunately we had to declare force majeure at the Sokhranivka entry point. The reason was that we discovered that the occupiers started to offtake the gas from the transit pipelines, and reroute it to local networks under the control of the Russian troops.

Can we compare this case to the Transnistria supplies bypassing Moldova?

It is somewhat similar. This territory was seized just after the start of the invasion. However, we were able to continue transit, because we ensured these pipelines worked in a fully isolated mode. At the beginning of May we started to see the changes I mentioned. In line with the interconnection agreement we offered Gazprom another point in Sudzha without an additional fee. It is a part of our transit contract. Unfortunately Gazprom declined. It was a very big surprise, as we did the same back in October 2020, when the Soyuz pipeline was in maintenance. At that time there was no problem. When Gazprom is saying that it is not possible, it is simply not true. Only one year ago it was possible.

Did Russia decrease gas transit to Ukraine?

Currently Russians do not even fully use the capacity booked in Sudzha. They transit less than they ordered. I believe this is how they put additional pressure on Europe and at the same time increase their margins because of the rising gas price.

Is cutting gas supply to Bulgaria and Poland part of this plan?

I believe so. Those actions are connected. Gazprom is increasing the pressure with the ruble payment scheme. It is a complete nonsense outside of the contract. The prices are rising and they are still getting the money. At  the same time Europe is deliberating how to answer to this blackmail. It has not made any radical decision in spite of the fact that Russia has cut the gas supplies to Bulgaria and Poland. Maybe they are not the strongest European countries, but they should get solidarity from others. Someone entered your house, attacked your family, and now wants to negotiate a deal. Poland is determined to withstand the pressure and it sets a good example.

Is Russia showing Europe that it is getting ready to create gas shortages on our market?

They are revealing that more is coming. They are escalating. The security of transit through Ukraine is no longer fully in our hands. Rockets hit Ukraine everyday. If the infrastructure is safe, the transit is safe. One of our proposals to Europe to increase the security of supply is to impose sanctions on Nord Stream 1. The gas should flow through Ukraine. It would increase Russian dependence on Ukraine. We can easily transit more with ample free capacities.

How can this be done?

A week ago we sought that Poland and Ukraine could use Nord Stream 1 volume, but Russia has introduced sanctions on the Yamal pipeline. We believe that significant part of Nord Stream 1 transit should be rerouted to Ukraine, and that will increase the security of supply and ensure more security for our infrastructure. That is a step that could be taken unilaterally by Germany without the need to wait for Hungarian approval. To protect free capacities, you need to make Russians use it. Our system is the only one which serves two purposes: transit and local usage. German industry in principle is safe as long the gas is coming, no matter through where. Europe is decreasing gas reliance on Russia. For some states it will take some time. Ukraine is in no position to become even more vulnerable. If we have issues with supporting our communities with natural gas, there could be social and political damages.

What is the worst case scenario?

Germany wants to decrease gas consumption by 30 percent. Technically Russia could satisfy gas transit demand via Nord Stream 1 and Turkish Stream. They could come up with a flimsy excuse to stop gas supplies to Ukraine, we will go to court for many years, but by then our system might be destroyed, or we would need to spend billions of dollars on modernization. The last cubic meter of Russian gas should go through Ukraine not Nord Stream 1.

What is your opinion on other initiatives like increasing tariffs on gas import from Russia?

Every initiative aimed at decreasing Russian gas supplies, which are sponsoring the aggression on Ukraine, is welcomed. Those ideas are complementary. Our approach is about physical gas transit. It would be even easier to implement the Polish idea of special taxation on gas supplies from Russia, because Ukraine has transparent gas transit information system. We cannot discuss it for 5 more years. We need some decisions now, to increase the pressure on Russia and limit their potential to influence our internal policies, like it is in Bulgaria right now. We need to have more sources of physical supplies outside of Russia. We were the first country that said that it is not reasonable that Gazprom has the right to offer different prices to different countries. Those prices could be three times as high. They always put the loyalty discount in their gas price. There should be unilateral European approach, for instance the gas price on the border of European Union or Energy Community should be the same. The rest of the price should come from the transport costs and that is it. Loyalty discounts are kind of bribes for different governments causing problems in the European Union.

How will the next winter look like?

Different scenarios from ENTSO-G show that the situation will not be dramatic. If Russia stops supply completely, that could be a problem, but with the right approach this can be managed. Definitely some industries would need to institute temporary shut downs, and there could be a price shock on the market, but in the long run we would become even less reliant on Russian gas. Over half of Russia’s budget income comes from exporting hydrocarbons Cutting off the hydrocarbon imports to Europe would limit Russia’s ability to effectively wage a war against Ukraine. We also have our internal work to do. We need more LNG imports from Qatar, Nigeria, Israel and so on, new terminals. We need to remove all the bottlenecks we have. I really appreciate Poland’s recent efforts, like the interconnectors with Lithuania and Slovakia. We need to find a way to pay for improving the physical ability to transit gas between Poland and Ukraine, Slovakia and Ukraine, to get access to Azerbaijani natural gas and LNG terminals in Turkey and Greece. Some countries need to develop interconnections with Moldova, Hungary. It will not take a lot of money, sometimes it is about political will.

Interview by Wojciech Jakóbik