The Republic of Moldova could become a sticking point in negotiations between Ukraine and Russia over the signing of a new transit contract as the country is bracing for a major supply crisis from 1 January 2020.
Speaking to ICIS, regional and EU sources said the former Soviet state had no access to alternative sources of supply or stored gas, being entirely reliant on volumes imported from Russia via Ukraine.
Ukraine is pushing to sign a long-term transit contract with Gazprom based on EU law so that capacity at all its interconnection points in the east and in the west is offered for third party access after the existing legacy transit contract with Gazprom expires on 31 December 2019.
It is working to unbundle the transmission operations of Naftogaz and has ramped up efforts to store over 20 billion cubic metres (bcm) of gas ahead of winter to minimise any risk of gas shortages that could occur if Russia’s Gazprom decides to curtail supplies should there be no transit agreement.
However, it could come under pressure from Russia as well as the Energy Community, an EU institution working with non-EU states such as Moldova, to make concessions in ongoing negotiations.
“They [Moldova] have no storage, no money, no interconnection agreement, no contracts with alternative suppliers,” a source close to negotiations told ICIS.
“They need some 1.6bcm of gas for the first quarter [of 2020]. Both heating and electricity are gas-based. […] This is as crazy as the situation in Ukraine in 2014 [before the Maidan revolution].” the source explained.
The Romanian connection
Moldova reportedly has an annual supply contract with Gazprom, although this has not been confirmed. The country consumes an estimated 3bcm of gas annually, of which 1bcm is needed in Moldova itself and 2bcm are consumed in the adjacent breakaway republic of Transnistria. The region is considered by the UN to be part of Moldova.
Most of its electricity generation and heating comes from natural gas.
Historically, it has been supplied by Gazprom via the Trans-Balkan pipeline which crosses Ukraine, its territory, Romania and Bulgaria before heading east into Turkey and southwest into Greece and Northern Macedonia. Its own transit contract with Gazprom for the Trans-Balkan pipeline also expires on 31 December 2019.
Although Transgaz, the transmission system operator of Romania has been expected to complete a key piece of infrastructure to transport Romanian gas to the Moldovan market , this project is likely to be delayed until at least the second half of 2020. This is because Transgaz through its Moldovan company, Vestmoldtransgaz, cancelled a tender for the construction of a segment along the Iasi-Ungheni-Chisinau corridor.
Romania already has a 1.5bcm interconnector between Iasi and Ungheni in Moldova. However, as consumption is concentrated in Chisinau, Transgaz, as the operator of the interconnector needs to build an extension to link it to the Moldovan capital.
Nevertheless, speaking to ICIS, Sergiu Ciobanu, former head of the Moldovan regulator ANRE and currently a regional consultant, said it was a “fantasy” to think that Romanian supplies could be made available on the Iasi-Ungheni-Chisinau line from 2020.
The Ukrainian transmission system operator, Ukrtransgaz, has reached out to Moldova , offering to store gas for it and deliver it this winter.
However, the situation is complicated by two factors.
Firstly, the Moldovan vertically-integrated incumbent, Moldovagaz is majority-owned by Gazprom. The country, as a contracting member of the Energy Community is under pressure to unbundle its transmission operations and establish an independent grid operator from 1 January 2020. This entity would have to sign an interconnection agreement with Ukraine for any future supplies from that date onwards.
An EU source told ICIS that Gazprom may condition the separation of the transmission operations on the new Moldovan operator paying for a stretch of 247km transit pipelines which are included in the Trans-Balkan corridor.
The overall nameplate transit capacity crossing Moldova is 34.6bcm/year. This includes a 20bcm/year pipeline and two other lines with a 7.3bcm/year capacity each, according to Ciobanu.
The EU source said Moldova, one of Europe’s poorest states, would simply struggle to pay off the transmission assets to ensure it abides by the 1 January unbundling calendar set by the Energy Community.
As a result, Moldova may miss the deadline, raising questions about the operator that will be asked to sign an interconnection agreement with Ukraine and possibly a new transit contract for the delivery of gas to southern Europe and Turkey.
Secondly, since Moldovagaz is majority-owned by Gazprom, the Russian producer may frown on any competing companies such as Ukraine’s Ukrtransgaz selling volumes into Moldova.
An important factor that could sway negotiations would be price.
According to local press reports quoted by Ciobanu, the Russian gas price to Moldova is expected to drop from $241.6/kscm (€20.08/MWh) in Q4 ’19 to an estimated $223.00/kscm (€19.30/MWh) in the final quarter of 2020.
Even with the reduction, the expected Q4 ’19 Gazprom price to Moldova is still likely to be more expensive than the closest Austrian VTP Q4 ’19 price, which was assessed by ICIS on Friday at €16.23/MWh. The Ukrainian October ’19 VTP price was assessed by ICIS at €14.31/MWh.
Ciobanu said Gazprom may reduce the price by another $40.00/kscm for the first quarter of 2020, although he insisted that forecasting the price was notoriously difficult.
If granted, the discounted Gazprom Q1 ’20 price to Moldova would be $183.00/kscm (€15.73/MWh), placing it at an estimated €3.60/MWh discount to the Austrian VTP equivalent assessed by ICIS.
However, Ciobanu said: “Forecasting the gas price to Moldova depends on economic and political factors. While the economic factor may be inferred from a contractual annual formula, the political factor remains an enigma.
“One thing is certain, the final price will depend on discussions between the Russian Federation and Ukraine related to transit from 1 January 2020 as well as the political context in Chisinau. In fact, we [Moldova] pay a political price for natural gas,” Ciobanu said.
Gazprom did not respond to questions from ICIS by publication time.
The market specialist said there were several scenarios that were being considered by Moldovan authorities for this winter.
In a status quo scenario, Ukraine and Russia would conclude a new transit agreement and volumes would be delivered from Russia to Moldova via Ukraine, as is currently the case.
In a second scenario, the delivery point would be moved from the Ukrainian-Moldovan border to the Ukrainian-Russian border and Moldovan suppliers would off-take volumes directly from there.
In a third scenario, Moldova would be buying gas from Ukraine’s storage.
“Ukraine is ready to offer gas from storage and this could be a temporary solution” he said.
Much, however, will depend on what will be discussed during Ukraine-Russian transit talks which are due to resume in October.