Naftogaz of Ukraine is offering the countries concerned with Russia’s decision to stop the South Stream project a solution that will enable these states to significantly improve their supply security through access to the liquid gas markets of western Europe via Ukraine’s existing pipeline grid. Ukraine’s vast underground storages that amount to nearly 40% of EU’s total capacity, are also being offered to interested parties to build reserves and take advantage of the seasonality of gas prices.

Andriy Kobolyev, Naftogaz CEO, commented: “We welcome the announcement that member states in South Eastern Europe are setting up a high-level working group with European Commission Vice-President for Energy Union Maroš Šefčovič, to develop an integration plan for Central and South Eastern European gas markets and interconnections. Ukraine has ample storage and transmission capacities needed to remedy the situation, and we are happy to contribute”.

Providing Romania, Bulgaria, Hungary and other concerned countries with access to the western European gas market involves enabling two-way flows, including backhaul (the “virtual reverse flow”), through the four primary pipelines interconnecting Ukraine and Slovakia (“the Primary Interconnector”). This solution can unlock a total annual capacity of 100 bcm for the region.

The solution is already technically available and requires no investments from either the EU or Ukraine. Unlocking this option requires certain action from the European that would bring the situation in line with the Third Energy Package. Naftogaz believes it is important that Ukraine, Slovakia and the European Commission urgently address this issue together.

By using the backhaul procedure which is common in the rest of Europe the Ukrainian and Slovak transmission system operators would be able to match gas volumes purchased in the EU and nominated for shipment to Ukraine against gas volumes nominated for shipment from Ukraine to the EU. Only the resulting net volume would then be physically transmitted through the interconnector. Such a change would not negatively affect Gazprom’s ability to deliver contracted gas to its European customers.

The stress-tests recently conducted by the European Commission show that the countries of South Eastern Europe run the highest risk in the case of disruptions of gas supply from Russia. Therefore unblocking the primary interconnector between Ukraine and Slovakia is currently the most urgent step to undertake to bolster European energy security. If unblocked, this reverse flow can ensure that South Eastern Europe has full access to European gas market liquidity.