Gazprom to Reduce Gas Transit to Europe on Ukraine-Slovakia Route

Slovak Prime Minister Robert Fico and Gazprom Vice-President Aleksandr Medvedev have launched talks about creating a Slovak-Gazprom joint enterprise. They announced on January 23 in Bratislava that the proposed new entity would compete against SPP, a company that is owned jointly by the Slovak state and Western partners and operates Slovakia’s transit pipeline system (SITA, TASR, January 23; SME, January 26).

Slovakia is second only to Ukraine as a transit country for Russian gas to Europe. Indeed, the SPP pipeline takes the lion’s share of Russian gas from the Ukrainian system en route to European Union territory. Linked directly with the Ukrainian gas transit pipelines at the eastern Slovak border, the SPP pipeline has a throughput capacity of 90 billion cubic meters per year. It carried 74 billion cubic meters of Russian gas in 2007, approximately two-thirds of the Russian gas volume reaching Europe from Ukraine. The SPP’s subsidiary Eustream (known until recently as SPP Transmission) handles this transport.

SPP (Slovensky plynarensky priemysel–Slovak Gas Industry) owns that westbound transit pipeline as well as Slovakia’s gas distribution system. SPP is a joint company owned by the Slovak state (51 percent) with Gaz de France (GDF) (24.5 percent) and the German E.On Ruhrgas (24.5 percent). The SPP subsidiary Eustream transports Russian gas to Europe across Slovak territory. Slovakia’s pro-Western government of Mikulas Dzurinda established this ownership structure in 2002 when SPP was privatized. Gazprom was given an opportunity to buy a minority stake, but declined, whether due to a cash shortage at that time or because a minority stake would not have meant control (see Anita Orban: Power, Energy, and the New Russian Imperialism, Praeger Publishers, 2008, p. 91).

Gazpromexport and SPP signed a 20-year agreement (2009 to 2028) in November 2008 on the transit of Russian gas westward. This supersedes the 10-year agreement that expired in December 2008. Under the new agreement, effective from January 1 of this year, SPP’s subsidiary Eustream will operate the transit of one trillion cubic meters of Russian-delivered gas to Europe via Slovakia during the 20-year period (RIA Novosti, Interfax, November 21; Hospodarske Noviny, November 24, 2008). The gas transit volume via Slovakia to Europe would average out at 50 billion cubic meters per year during the entire period. This is a far cry from the annual average that exceeded 75 billion cubic meters during the past few years (and at least 85 billion previously). The ultimate decline looks downright dramatic when one assumes, as one must, that Gazprom will implement the reductions gradually over the 20-year period. By the end of that period, the annual average would drop to a fraction of the recent volumes of Russian gas transported through Slovakia.

If implemented, this agreement entails wide ramifications for Russia’s gas export strategy. First, it implies deep cuts in the transit of Russian gas via Ukraine, given that the Slovak transit pipeline is merely an extension of the Ukrainian transit route to Europe. It is possible that the Kremlin intends to switch some gas export volumes from the Ukrainian route into the Nord Stream pipeline on the Baltic seabed and/or the planned South Stream pipeline on the seabed of the Black Sea.

The Kremlin and Gazprom, however, constantly assure European consumer countries, as well as Ukraine itself, that those two seabed projects are not meant to replace any existing route. Russia is continuing to take this line even after the recent Russia-Ukraine transit crisis, and Medvedev repeated those assurances in Bratislava during his visit (SME, January 26). If even partially true, this line reveals the second, major implication in Gazprom’s agreement on transit through Slovakia: namely, that in the years ahead Russia will not be able to fill all its existing and projected pipelines to anywhere near their declared capacity. Reducing gas transit via Slovakia into the European Union reflects Gazprom’s own anticipation of future shortfalls (relative to total commitments) in Russian gas production and exports.

With regard to Slovakia’s own gas supplies, the Slovak government seems to have drawn the wrong conclusions from Russia’s suspension of gas supplies via Ukraine to Europe last month. Gazprom and the Kremlin certainly knew in advance of that move that Slovakia would be among the countries most heavily hit, but the Slovak government was alone in the EU to endorse Russia’s thesis blaming Ukraine for the crisis. Again alone in the EU, the Slovak government sent a cabinet minister to the farcical "energy security summit" on January 17 in Moscow. By the same token, no official from Bratislava attended the Nabucco summit in Budapest on January 26 and 27. Although Economics Minister Lubomir Jahnatek fleetingly expressed an interest in Nabucco and other regional energy projects for supply diversification, he seems to have been almost instantly overruled by Fico (SME, January 19, 20, 26, 27). Rather than joining other countries in the region in seeking alternatives to Russian gas, the Slovak government has apparently decided to stake the country’s energy security on the most unlikely guarantor, Gazprom.