Thursday, May 19, 2022

Citing Force Majeure of Russia’s Invasion, Ukraine Turns Off Gas Flow

Ukraine stopped the flow of Russian natural gas to Europe on May 11 through the cross-border Sokhranivka station, blaming Russian-backed separatists of siphoning supplies.

Gas TSO of Ukraine (GTSOU) reported the occurrence of force majeure, which makes it impossible to further transport gas through the Sokhranivka and the border compressor station (CS) Novopskov, which are in the occupied territories. “CS Novopskov is the first compressor station of the Ukrainian GTS in the Luhansk region, through which almost a third of gas from Russia to Europe (up to 32.6 million cubic meters per day) is transited,” GTSOU said in a statement.

Noting that several GTS facilities are in territory temporarily controlled by Russian troops and the occupation administration, GTSOU said it cannot currently carry out operational and technological control over the CS Novopskov and other assets located in these territories. “Moreover, the interference of the occupying forces in technical processes and changes in the modes of operation of GTS facilities, including unauthorized gas offtakes from the gas transit flows, endangered the stability and safety of the entire Ukrainian gas transportation system,” GTSOU said.

“To fulfill its transit obligations to European partners in full and following the terms of the agreement, it is possible to temporarily transfer unavailable capacity from the Sokhranivka physical interconnection point to the Sudzha physical interconnection point located in the territory controlled by Ukraine,” Gas TSO of Ukraine said.

Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on May 11 most of Russian gas flowing to Europe via Ukraine goes through the Sudzha entry point whereas a much smaller volume goes through the Sokhranivka entry point en route to Moldova/Romania. “As it is a very small volume its impact on the European gas market is limited, but the very fact of transit stoppage is likely to make the market worry that under certain conditions transit could also be stopped in respect of much larger volumes at Sudzha – and when the markets worry, prices rise,” Yafimava said.

European natural gas prices jumped as some Russia gas transit volumes were disrupted.  The benchmark contract surged 14% as flows from Russia via Ukraine fell further on May 12, Bloomberg reported, adding that Dutch front-month gas, the European benchmark, rose as much as 22% on May 12 and settled at €106.701 per megawatt-hour. The UK equivalent was up 26%. German power also surged, with next month’s contract rising as much as 17%.

The Oxford expert explained that normally in the event of any dispute, transit must not be reduced/stopped until a dispute resolution procedure has been completed. She noted that parties can attempt to settle their dispute bilaterally within a certain period and, failing that, submit it to arbitration.

“GTSOU press release cites force majeure circumstances in respect of transit via Sokhranivka; on its part, (Russian gas monopoly) Gazprom denies it has received any confirmation of such circumstances. Generally, a company can issue a notice of contract termination using its force majeure clause. Should the transit contract be terminated, there would be no legal basis for transiting Russian gas across Ukraine through any of the entry points,” Yafimava told New Europe.

Meanwhile, the European Council on May 11 reached a mandate for negotiations with the European Parliament on a proposal on gas storage. To improve EU security of supply in the current geopolitical context, the proposal aims to ensure that gas storage capacities in the EU are filled before the next winter season and can be shared between member states in a spirit of solidarity, the EU Council said in a press release, adding that the mandate was agreed by the representatives of the member states in Coreper.

The mandate specifies the rules for underground gas storage and possibilities for counting stocks of liquefied natural gas (LNG), while limiting obligations to a certain volume of the annual gas consumption of the member states over the last five years, to avoid a disproportionate impact on certain member states with a large storage capacity.

As not all member states have storage facilities on their territory, the mandate stipulates that member states without storage facilities will have access to gas storage reserves in other member states and will have to share the financial burden of the filling obligations, the Council said.

Member states have also agreed on mandatory certification for all storage system operators in order to avoid potential risks of external influence on critical storage infrastructures, which could jeopardize security of energy supply or any other essential security interest, the Council said, adding that member states agreed that the filling obligations would expire on December 31, 2026. Finally, the mandate provides for a derogation to be granted to Cyprus, Malta, and Ireland as long as they are not directly interconnected with the gas system of other member states.

Author profile
Kostis Geropoulos

Kostis Geropoulos is the Energy & Russian Affairs Editor, New Europe.

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