Gas contract talks with Gazprom bring no result

The Jan. 20 meeting on the future of the natural gas
contract between Naftogaz and Gazprom, with the mediation of the EU Commission,
brought no results, Naftogaz COO Yuriy Vitrenko said this morning on his
Facebook page. Gazprom simply offered to prolong the existing contracts signed
in 2009, but on the condition on “the recovery of the balance in relationships”
between Naftogaz and Gazprom. That recovery assumes Naftogaz dropping its USD
2.7 bln compensation award by the Stockholm Arbitration Court in February 2018,
Vitrenko wrote. In its turn, Naftogaz insists that “recovery of balance” should
involve Gazprom adhering to the Stockholm court’s ruling, a position backed by
the EU Commission, Vitrenko wrote.

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

Alexander Paraschiy: 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.

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
fulfill, but we believe this is the best solution for all Ukrainian authorities
to concentrate on in the remainder of 2019.

So far, we see a high chance that volumes of
Russian gas transit through Ukraine will plummet as of 2020, depriving Ukraine
of more than USD 1 bln in export revenue.