Trilateral gas contract talks between Gazprom, Naftogaz and EU fail

Trilateral gas contract talks between Gazprom, Naftogaz and EU fail
Ukraine is struggling to persuade Gazprom's CEO Alexei Miller to sign a new gas transit deal when the current one expires / wiki
By bne IntelliNews January 22, 2019

Trilateral negotiations on the thorny issue of renewing Ukraine’s gas transit deal to pass Russian gas to its EU customers after the current contract expires at the end of the year held on January 21 failed to produce any results, Naftogaz COO Yuriy Vitrenko said on his Facebook page.

The deal signed by former Ukrainian prime minister Yulia Tymoshenko in 2009 runs out at the end of this year, while Russia’s Nord Stream 2 gas pipeline extension north of Ukraine that will allow Gazprom to bypass Ukraine entirely is due to come online at the start of 2020. Ukraine stands to lose some $3bn in transit fees if a deal cannot be struck – money it can currently ill afford to forego.

Gazprom simply offered to prolong the existing contracts signed in 2009, but on the condition of “the recovery of the balance in relationships” between Naftogaz and Gazprom.

That recovery assumes Naftogaz dropping the award made by the Stockholm arbitration court in February 2018 that required Gazprom to pay compensation of $2.6bn to Naftogaz.

In its turn, Naftogaz insists that “recovery of balance” should involve Gazprom adhering to the Stockholm court’s ruling, a position backed by the European Commission, Vitrenko wrote.

Commenting on the futility of the proposal to prolong the existing contract with Gazprom, Vitrenko said that it not only contradicts EU energy regulations (which require a spinoff of the Ukrainian gas transit pipeline from Naftogaz), but also offers no guarantees for the amount of natural gas to be transited by Gazprom through Ukraine.

“The absence of a tangible result of the negotiations is what we have expected, and the chance that the Ukrainian and Russian gas monopolies will be able to reach any agreement by the end of 2019 looks negligible,” Alexander Paraschiy of Concorde Capital said in a note. “In our view, the only way for the Ukrainian side to secure transit of Russian gas in 2020 is to make EU-based traders purchase natural gas from Russia at the Russian-Ukrainian border. In this way, Naftogaz will not have to deal with Gazprom at all. This task is easier to envision than fulfil, but we believe this is the best solution for all Ukrainian authorities to concentrate on in the remainder of 2019.”

Currently Gazprom holds all the cards on the transit issue. Attempts by some EU members, like Poland, to block the construction of the Nord Stream 2 pipeline have failed, partly due to Germany’s insistence that the pipeline is an “economic” not a “political” project. The pipeline’s terminus is in Germany and will make the country a hub for Russian gas sales in western Europe. The 1,200km pipeline is currently about a quarter complete and ground has been broken on the German terminus.

 

News

Dismiss