Naftogaz Estimates Pipeline Network Modernization at $3.5 Billion

Ukraine's pipeline network needs $3.5 billion for its modernization, a senior executive of  state-owned oil and gas company Naftogaz Ukrayiny said on Sunday.

"As we outlined in the master plan, modernization will cost about $3.5 billion, which is much less than the cost of all alternative routes that are offered today in the world," Naftogaz Deputy CEO Vadim Chuprun said in an interview with Ukraine's TV Channel Five.

Chuprun declined to specify the sources of funds for modernization, saying Ukraine would start modernizing its Soviet-era gas pipeline network on its own this year but pinned hopes on support from the European Union and Russia.

Ukraine's Fuel and Energy Ministry has said the ex-Soviet republic intends to raise $6.5 billion in investments to modernize the gas pipeline system by 2018.

Ukraine accounts for 80% of Russian gas transit to EU nations. Kiev has long been trying to persuade Moscow to abandon the idea of building the South Stream gas pipeline, which will significantly reduce gas transit volumes through Ukrainian territory.

Ukraine already faces the loss of approximately 20 billion cubic metres of gas which be diverted from transit to Europe via Ukraine by the Nord Stream gas pipeline. Ukrtransgaz, a subsidiary of Naftogaz, which operates the pipelines used to transit Russian gas, estimates this will result in lost revenues of $700 to $720 million for 2012.

Ukraine's gas network, which includes more than 37,500 kilometers of pipe plus 71 compressed air plants and 13 underground gas storage facilities, pumps 141 billion cubic meters of gas to Europe a year.

Kiev has offered Russia and the EU on many occasions to jointly modernize its gas network saying the effort will be much cheaper than the construction of the South Stream pipeline bypassing Ukraine. Russia has said it keeps it interest in the Ukrainian gas pipe network but will not abandon the construction of new gas pipelines.

Source: RIA Novosti