Ukraine’s government is in talks with Japanese and Turkish energy corporations on the construction of a liquified natural gas terminal able to provide fuel to Europe and bypass Russia-controlled pipelines, Interfax reported on July 8.
Representatives from Ukraine’s Ministry of Energy, Japan’s Mitsubishi Group Inc, and Turkey’s Calik Group are discussing building a USD 750-800 million liquified gas terminal on Ukraine’s Black Sea coast able to receive natural gas deliveries by sea, according to the report.
The transshipment complex would enable Azerbaijan and Central Asian producers to deliver product to Europe via Ukraine’s pipeline network, and at the same time give Ukraine an alternate to fuel delivered by Russia’s natural gas pipeline network.
Foreign investors would according to preliminary discussions fully finance the terminal project, provided Ukraine’s government gave guarantees of state support to the construction, said Burzu Aliev, a Ukraine government spokesman. The complex if operational would break a Russian monopoly on natural gas deliveries to Europe, and reduce the price of natural gas on the Ukrainian market by as much as 50 percent, Aliev predicted. Talks are in a early stage and a business plan is not complete, he added.
The terminal as per current discussions would be able to transfer some 10 billion cubic metres of natural gas a year, roughly one-fifth of Ukraine’s total consumption.
Meanwhile, Ukraine is trying to rebuild its reservoir of gas ahead of winter. “This year’s August distraction may be a gas flare up. One the face of it, Ukraine and Russia appear to be heading towards an escalation of the dispute,” Chris Weafer, chief strategist at Moscow’s UralSib bank, wrote in an e-mailed not to investors.
Ukrainian national joint stock company Naftogaz has confirmed that it is now taking about 120 million cubic metres of gas every day. It took an average of 33 million cubic metres in June and last week paid USD 300 million to cover that. The bill for July’s gas is likely to be USD 1.2 billion and will be payable in the first week of August, Weafer said.
According to Ukrainian President Viktor Yushchenko’s energy aide, Naftogaz wants to add an additional 10 billion cubic metres to storage by mid-October. That would cost just under USD three billion, i.e. in addition to the cost of current usage. “Right now, Ukraine cannot afford that. Either it gets a loan before the first week of August or there will be another dispute. A loan is possible from Russian banks, it has already been muted, but likely it would have to collateralised with gas assets, i.e. pipeline ownership. There is an open dialogue between the two country’s Prime Ministers so a deal may be worked out ahead of the next payment deadline. But any deal that is acceptable to Moscow is likely to be a very contentious issue in Kiev ahead of the autumn presidential election,” Weafer wrote.