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    A Gas Hub in Eastern Europe?



Gas trading hubs in Ukraine and Bulgaria are still vague ideas, and a lot depends on the way Gazprom behaves.

by: Mikhail Krutikhin

Posted in:

Natural Gas & LNG News, News By Country, Bulgaria, Russia, Ukraine

A Gas Hub in Eastern Europe?

No gas trading hubs, such as NBP or TTF, exist in the southern and eastern parts of Europe. The area has not been able yet to grasp the concept of a liquid market where long-term contracted gas is complemented by short-term and spot deals—and the traditionally domineering role of Gazprom is partially to blame for this. 

Perhaps the situation may change sooner than anyone expected. Encouraging signals are coming from at least two places: Ukraine and Bulgaria

For reasons that have nothing to do with economics, Gazprom has done all it could to erode its own role in Ukraine, demolish its largest market niche in Europe, and push the Ukrainians away from Russia toward western Europe. Disenchanted with the bullying attitude of the Russian gas giant, this ex-Soviet nation is seeking integration with the EU energy networks, and the first steps have been taken in that direction. 

Ukraine’s vast underground gas storage facilities, which Gazprom has been using for years, may become an integral part of the EU grid. Germany’s RWE reportedly wants to rent some room there to host gas reserves to cover wintertime peak demand. The facilities are a great bargaining chip for the Ukrainians in their talks on economic association with the EU, but a cumbersome and costly liability in uneven relations with Moscow. 

In the final run, if other European energy companies follow RWE, the gas storage and transportation network of Ukraine may get integrated into the EU gas sector, and the Europeans would start buying gas on the Russian - Ukrainian border rather than on the western border of Ukraine. 

In Bulgaria, Gazprom’s eagerness in building the South Stream pipeline is also a harbinger of a new gas distribution pattern—and this pattern is not what Moscow wants it to be. 

The Bulgarians are telling Gazprom they are prepared to host a segment of the South Stream project but the pipeline will have to obey the EU rules according to the Third Energy Package. The big Bulgarian idea, as a government official of that country admitted at an international conference in Rotterdam a couple of years ago, is to create a distribution and trading hub for southeastern Europe. Gas would enter the Bulgarian grid from several sources: the existing pipeline from Russia, plus South Stream, plus an interconnector from Turkey with Caspian and Middle Eastern supply—and then the new hub would distribute it to other countries in the area. Ideally, the Bulgarians hope, this arrangement can help them set up something like a regional NBP or TTF… 

Both prospects are still vague ideas, and a lot depends on the way the Russian supplier is going to behave. So far, the attitude of Moscow has not demonstrated any signs of softening. The lack of flexibility in relations with customers results not only in shrinking market niches. It leads to potentially dramatic changes of market patterns. 

Mikhail Krutikhin

Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.