French gas for Ukraine

Nana Chornaya

A large European company decided to enter the Ukrainian gas market, not only to supply gas but also to use the country’s underground storage facilities. 

The result of a business forum in Paris: Engie will be the official supplier of gas to Ukraine / Photo from UNIAN

Experts admit the Russian Gazprom may respond as it still can’t get over losing Ukraine.

One of Europe's major energy companies, France’s Engie (GDF Suez) with an annual turnover of around EUR 60 billion, will be the official supplier of natural gas to Ukraine from the European market, where the main players are Norway, Russia, and Algeria. 

And most importantly – it will be the first European company to be allowed to store gas in Ukraine’s underground storage facilities (USF). A preliminary agreement was signed in the presence of Prime Minister of Ukraine Volodymyr Groysman and Minister of Economy and Finance of France Michel Sapin within a framework of a business forum held in Paris October 28.

Engie has already opened its subsidiary in Ukraine. The news on the European gas pioneer on the Ukrainian market has caused quite a stir.

However, Naftogaz had already reported on negotiations on the matter earlier this summer. In June, Naftogaz CEO Andriy Kobolev said that a large international company from France is planning to take a loan from the IFC to buy gas and then sell it to Naftogaz at a market price.

However, he had not specified the name of the company back then. And now, in October, a preliminary agreement was signed off, which after a series of technical procedures within two to three months will start being implemented.

After the signing in Paris, Kobolev said: "The entry of a powerful European player to the Ukrainian market is a good signal for other European companies. 

We are pleased to see that the reform of Naftogaz and the [gas] market is working."

The experts agree with him but at the same time, they note that Ukraine already has a dozen of other European gas suppliers, some of them no less powerful than Engie: Germany’s Uniper Global, U.S.-based Noble, Italy’s Eni, and Swiss Axpo Trading.

The main thing is not the exclusivity of the preliminary deal but the fact that foreign companies are beginning to cooperate more actively with Ukraine due to the implementation of the gas market reform, the implementation of the European energy strategy that provides for free competition in the fuel supply market.

"If we discard the pathos of the news, the first steps in gas reform have already been made. Engie is among the pioneers, as it happened with the reverse flow supplies four years ago, when on November 4 2012, the first small reverse flow supply of gas to Ukraine was made by the largest German company RWE.

Today, some half a dozen companies of all sizes and origins supply gas to Ukraine in reverse flows. And further steps in the context of the gas market reform is the arrival of new players," president of the Strategy XXI  Center Mykhailo Honchar said in his comments to UNIAN.

Director of the Center for Energy Research Oleksandr Kharchenko shares his opinion. "I would not overestimate the incoming preliminary document signed with another major Western company.

There are plenty of companies selling gas on the Ukrainian market, including the major European ones, who work here either directly or through their traders. It is important that we see the first results of the reform of the national gas market and that our European partners are beginning to see the opportunity to work in our market, so this is an absolutely positive thing," he said.

However, Ukraine shouldn’t expect a considerable number of those wishing to enter the gas market with direct fuel supplies: a common strategy for the western companies is to look into the actions of a pioneer and then make a decision, said Honchar. 

The situation was similar with the reverse flow supplies. According to the expert, the Ukrainian gas market is now very attractive after the unification of prices, setting conditionally market prices on the national market. "The volume of gas supplies to Ukraine will remain a meaningful share for European companies: a few billion dollars is a large sum which will be fought for.

Everything that Gazprom has lost as a result of a reckless government and corporate policy, has been gained by its European partners," said Honchar.

In this context, Gazprom’s reaction to what is happening in the Ukrainian gas market is quite predicted. Therefore, Ukraine should be prepared.

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