Ukraine, Russia may resume talks on gas trade after one-year freeze

The Ukrainian government supports a discussion to possibly resume natural gas purchases from Russia, Naftogaz reported in a Nov. 25 press release. “Naftogaz is guided by two criteria in the gas imports issue: price and reliability,” the statement said, adding that Gazprom is inflexible on these criteria, which “has been making the Russian supplier’s offer uncompetitive for a year.” Nov. 25 marked the one-year anniversary of Ukraine refusing Russian gas, Naftogaz noted.

Earlier that day, European Commission Vice President Maroš Šefčovič discussed with Russian Energy Minister Aleksandr Novak the possibility of arranging a meeting with the Ukrainian side to discuss resuming Russian gas supplies to Ukraine. According to Novak, the price of Russian gas for Ukraine was “absolutely competitive,” namely it was lower than on European spot markets by USD 15-30/tcm, as cited by the Interfax news agency. Novak discussed with Šefčovič the possibility of supplying 1.5-4.0 bcm of gas to Ukraine this winter. They agreed to arrange a meeting with the Ukrainian side in December.

Alexander Paraschiy: An opportunity to buy some natural gas directly from Gazprom would create a good back up for Ukraine this winter season, but such imports aren’t critical. In 12M of Nov. 2015 – Oct. 2016, Ukraine reduced gas consumption by 12% yoy to about 31.4 bcm, of which it produced by itself 20.0 bcm. In 10M16, Ukraine imported 14% less gas from Europe than a year before (about 7.9 bcm), thus having under-utilized its potential to import from the West. Given Ukraine’s lack of necessity of gas purchases from Gazprom, and given the clear difference of positions of the Russian and Ukrainian sides, we do not expect their talks on gas will be fruitful.