ONE YEAR TO ZERO HOUR:in search of a compromise on Ukrainian gas transit [GGP]

The current contract between PJSC Gazprom and NJSC Naftogaz of Ukraine is due to end in exactly one year. Gazprom will not have had enough time to complete the construction of all diversification gas pipelines by that point: by 2020, only one string of the Turkish Stream is guaranteed to be launched (operating for the Turkish market). Nord Stream 2 will probably be commissioned some time later, while the construction of the second line of the Turkish Stream can be expected in two-three years’ time.

All this makes it necessary to sign a new transit agreement with Ukraine. At the same time, considering the plans to gradually bring online new gas transmission capacities, Gazprom is interested in new short- or medium-term arrangements. In turn, Naftogaz of Ukraine is vested in a new long-term contract to ensure that its gas transmission system is sufficiently loaded.

The objective of the new transit agreement is complex: it is not limited to a mathematical comparison of necessary export volumes and avail-able gas pipeline capacities. Russia also needs to consider whether it will be able to «reach» all the countries buying Russian gas with its new gas pipeline systems. There is also the factor of irregularity of supplies, which means that the capacity of gas pipelines has to exceed transit volumes. The possibility of using underground gas storage fa-cilities - both in Europe and in Ukraine - will also affect the ultimate setup of market operations. It is necessary to understand whether re-verse gas supplies to Ukraine will continue, or whether Gazprom and Naftogaz of Ukraine will again switch to deliveries under a direct con-tract. It is important to note that reverse supplies increase both Europe-an exports of Gazprom and gas transit volumes through Ukraine.

One of the remaining factors of uncertainty is whether European companies will take part in the management of the Ukrainian GTS. There is also the possibility of delivering some of the gas intended for European consumers to Ukraine’s eastern borders.

Gas transit tariff will certainly be a key factor in the negotiations. There is no doubt that in the new agreement the tariff will directly or indirectly depend on the obligations in relation to gas volumes pumped, which Gazprom will take on.

The interrelationship of all these factors analyzed in this paper will determine the final agreements, configuration and, most importantly, the cost of Russian gas transits through Ukraine after 2019. The three parties in the negotiation process indeed face a complex task: to agree all these complex parameters of the new agreement within the coming year. In the worst case scenario, there could be a repetition of the 2008/2009 winter events. The agreements would be signed at the last moment (although probably without a dramatic interruption of gas supplies to Europe). We very much hope that this development can be avoided.



DOWNLOAD the full report, ONE YEAR TO ZERO HOUR: in search of a compromise on Ukrainian gas transit by Tatiana Mitrova and Alexander Sobko, SKOLKOVO Energy Centre, Moscow School of Management SKOLKOVO. Tatiana Mitrova is a Member of the Natural Gas World Advisory Board



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