Russia continues to blackmail Europe by restricting gas supply – the crisis is deepening on the eve of the heating season. TSN.ua spoke with Sergiy Makogon, the CEO of the Gas Transmission System Operator of Ukraine, about prospects and opportunities in Europe and Ukraine this winter, as well as non-market behavior of Gazprom.

– There is a real festival of panic and hysteria in Europe right now. Everyone thinks that this winter, Putin will turn off the gas tap. So will Europe freeze?

– The situation on the gas market in Europe is indeed a difficult one. However, this situation had begun all the way back last year. Back then, “Gazprom” had already begun to “dry up” Europe by not supplying large volumes of gas. Last year, the Russian company did not pump gas into European underground gas stores which belong to or are controlled by the “Gazprom” company, and which were filled to 8-10%. This was the “red flag”. This year, especially after the beginning of the full-scale invasion of Ukraine, they have dropped their masks, and are threatening not only Ukraine – as they used to do before – but also the entirety of Europe.

We remember that they initially demanded that they be paid in Russian rubles for their natural gas, and cut off the supply to Poland, Bulgaria and Finland, causing several countries to agree to their terms. But this turned out to be too little for their liking. Today we see that even companies which are paying in rubles are not receiving gas.

Firstly, “Gazprom” has provided self-sanctions, preventing transfer of its gas through the “Yamal-Europe” pipeline which runs through Poland.

Secondly, “Gazprom” is not using the pipelines in Ukraine, which it had already booked out and paid for. They are currently using about 40% of what they had negotiated to use in Ukraine.

Thirdly, “Gazprom” has reduced the flow of gas through the “Nord Stream 1” pipeline. The cause – one of the turbines had been detained in Canada due to sanctions. But all the experts understand that one turbine has little influence on the work of the compression pumping stations, since they use eight turbines. So this is another cause to show Europe who is the “boss” here.

I am convinced that Europe has already understood that Russia is an unreliable supplier. And we see that countries within the EU have started to turn away from gas from the Russian Federation. Germany has planned construction of its own Liquefied Natural Gas terminals, and the first one is already under construction. Therefore, in my opinion, an irreversible process of moving off from using Russian gas has begun in Europe. But I agree with you – this winter will be very difficult. Europe is preparing, and European reservoirs are already 60% full. This is an average value compared to the last 5 years. So, if Russia does continue the transit of gas this year, there shouldn’t be any problems. But there is a risk that “Gazprom” fully stops the supply, and this may be an energy shock to Europe.

European countries have a plan of responses to such a situation, such as disconnecting non-critical enterprises from the electrical grid; a shift to alternative energy sources – fuel oil, coal, and have already begun to use coal-fired power plants etc… No-one will freeze, but there will be a certain discomfort.

– Will Ukraine be able to produce enough gas on its own to fully meet the needs of our domestic consumers? In 2015, we stopped importing gas from Russia and bought it instead from European suppliers, so if there will be a shortage of gas in Europe, where will we get enough for ourselves?

– I would like to remind that we produce our own gas – this is close to 20 billion cubic metres. The consumption within the country used to be 30 billion. Currently, it will very noticeably decrease. In addition, the government and “Naftogaz” are very actively working on creating a gas reserve. Preparations for the coming winter are being overseen by the prime-minister, and meetings on this topic happen all the time. There is a certain plan of action. The gas import has already begun. We, as the Gas Transmission System Operator of Ukraine, have done our homework. Over the last year, we have doubled our capacity to import gas from Poland, Slovakia, Hungary. We are working on the possibility to import from Turkey and Greece, where there is liquified gas as well as supplies from Azerbaijan. Everyone is working to make sure Ukraine passes the winter with no problems. But we understand that when the country is at war, this is a very difficult task.

– “Gazprom” has placed “Nord Stream 1” on planned yearly maintenance. But Germany is in a state of panic. Berlin believes that the Russians will not re-enter “Nord Stream 1” into service. At the same time, “Gazprom” has not reserved any more transit capacity through the Ukrainian pipelines. Is this a way of making threats?

– Indeed, every year, pipelines undergo planned repairs. So, the repairs on “Nord Stream 1” are a standard situation. Each year since 2010 – the year of its construction – prophylactic maintenance has occurred on the pipeline. However, every year before, “Gazprom” always booked transfer capacity for this period through Ukraine or Poland. I believe that currently, “Gazprom” is using any possible excuse to decrease the amount of gas supplied to the EU, in order to stoke the fires of panic on the European gas market, pushing the price up as high as possible. We realise that such a high gas price creates great pressure against politicians within the EU, as there is already a level of discontent among consumers and businesses due to the high price for natural gas. So this is a part of the political pressure Russia is applying to Europe, in order to get rid of the sanctions and to achieve its political goals. The fact that Russia is using gas as a hybrid weapon against our European allies has long stopped being a secret from anyone.

– Let us discuss these turbines. It turns out that Canada has made an exemption in the sanctions for Siemens, and not for the single Russian turbine which was under repair and which is necessary for “Nord Stream 1” to function, but for all eight?

– We have yet to see the document. As far as I know, the turbine has not yet been sent to Russia. Furthermore, the Congress of Ukrainians in Canada has filed a case against the government of Canada for the cancellation of this exemption. So we are continuing this struggle. But in my opinion, this sets a very poor example of a sanctions exemption. If the sanctions are in place, Europe ought not to look for an exemption every time to appease Russia. Everyone understands that the Kremlin is uncontrolled – they are making completely illogical decisions. And to rely on Putin’s goodwill after everything that is happening in Ukraine seems to me a very unwise policy. Europe shouldn’t fall to the pressure from Russia right now. It is impossible to negotiate with terrorists, because a terrorist will always demand more and more.

– In addition to the news about “Nord Stream 1”, Russia has begun an information special operation in Germany with regards to entering “Nord Stream 2” into service. It would have seemed that this project should have had its funeral a long time ago. But no – they are trying to present it as something that will solve all of Germany’s problems.

– Yes, there have already been first signs of this. Several members of the Bundestag have already voiced such a proposition. But it will be a complete defeat for Europe if this happens. And there is no way to justify entering “Nord Stream 2” into service in the current situation. This will be a collapse of European unity. Furthermore, everyone understands that the problem does not lie in the transit capacity. We have the capacity to send the entire volume of both the “Nord Streams” through Poland and Ukraine. We have the necessary capacity available. The problem is not in the pipeline, but in the fact that Russia is not giving the gas, to keep pressuring Europe. So I believe that the chances that “Nord Stream 2” will be operational are slim.

It seems to me that in Europe – particularly in Germany – the view on the previous government has changed drastically. The people now understand that Germany has become weaker and more dependent on Russia. Because right now, they are effectively forced to compromise with the aggressor-country due to an artificially created dependence of Germany on Russian natural gas.

– The gas embargo. We have all heard that the seventh sanctions package against Russia will not include it. Is the EU truly so dependent on sanctions from Russia that they are unable to turn away from it even before the end of the year?

– We know the views of certain countries on the seventh package, including the Czech Republic, Hungary and several others. These demonstrate the dependence of these countries on Russian gas. For example, Hungary is completely dependent on supplies from Russia. No-one knows at what price the gas is being supplied to them, and why Hungary behaves like this not only in gas questions but in all areas of sanctions against the Russian Federation. This sends to me a very strong signal that Russia is likely using its influence over Hungary in order to block sanctions. And this is Russia’s approach to cooperation with the EU, when they use the “divide and conquer” principle: they are dividing Europe, European politicians, and are attempting to reach their political goals this way.

We will fight for sanctions against gas to be imposed. Possibly, the sanctions will be partial. I don’t see any obstacles to imposing sanctions against Russian liquefied gas. It’s a large stream of income to Russia. Piped gas can be limited. For example, the operation of “Nord Stream 1” may be prohibited, forcing Russia to use Polish and Ukrainian pipelines. It is very important for us to maintain a transit of gas through our transmission system during the war, as this provides an – as we say – “Iron dome” against the destruction of our gas transmission system. Because we do not have a separate network for supplying gas to our domestic consumers. And while Russia is invested in the transit, it will not destroy our transmission system as it has our oil purification plants and storages, our railways and logistics centers etc… We need the transit as a guarantee that they will not destroy our gas transmission system.

– Ok, European countries are very dependent on Russian gas. But there are alternative suppliers. We know about Azerbaijan, Qatar. Who else?

– Currently, large volumes of liquefied natural gas are being supplied to Europe. By the way, last month, the amount of liquefied gas imported by the EU exceeded the amount of gas imported from Russia for the first time. This liquefied gas comes from the USA, Qatar, Australia and other countries. They are increasing their export volumes. Sadly, today, Europe is facing problems with an insufficient number of LNG terminals, as well as a lack of connections between the pipelines of different countries.

Spain, for example, has many LNG terminals, but is barely connected to the European gas transmission system. The capacity of the Spain-France interconnection is very low. We know that Germany did not have a single LNG-terminal – they had always been building pipelines with Russia. But they have ratified a decision to build four LNG-terminals, and the first is already under construction. Time is needed – two-three years for the situation to change drastically. I believe that Russia is losing the EU gas market forever. But I highlight the fact that time is necessary. Russia understands that Europe is still dependent, and therefore they are using gas to the greatest possible extent as a lever to apply pressure.

– In conclusion, I would like to clarify about Hungary, which has declared a state of emergency in the energy sphere, and has prohibited the export of fuels. You have said correctly that no-one knows the price at which they buy Russian gas. But it’s clearly a good bargain. So, if Hungary is well-off, why are they declaring a state of emergency?

– I believe it’s more a political decision for the domestic consumer, to show that the Hungarian government is taking all the necessary steps. There was information that the EU was concerned by this decision, as it may not be in line with the principles of the European Union. We also do not understand why they are limiting exports. Even in Ukraine, despite the state of emergency, we are not decreasing the amount of gas transit. Currently, there is transit of gas from Poland through Ukraine to Hungary. For example, if Ukraine decides to buy gas from Austria and import it through Hungary, what risks are there for Hungary in terms of energy. It’s a strange approach. We are still studying this decision. Although there are import routes other than Hungary, such as through Slovakia (which is a route of much greater capacity) and Poland. So we are diversified, and have alternative possibilities to supply gas to Ukraine.