Naftogaz proposes Gazprom sign new contract under EU rules

Ukraine’s leading natural gas producer and transporter
Naftogaz (NAFTO) proposed Gazprom (GAZP RX) to continue their discussions on a
new transit deal for 2020 based on EU rules, Naftogaz director Yuriy Vitrenko
wrote in his blog on Nov. 25. He clarified that Naftogaz sent a letter to
Gazprom responding to its last week offer. According
to Vitrenko, Naftogaz highlighted that a new gas transit deal should be “fair
and balanced on its own” and should not depend on a settlement of earlier
disputes between Gazprom, Naftogaz and other parties.

Naftogaz also reported that it is ready for
constructive offers from Gazprom regarding the fulfilment of the 2017-2018
rulings of the Stockholm Arbitration Court (under which Gazprom owes almost USD
3 bln to Naftogaz). Naftogaz also stressed that adjusting Ukrainian legislation
to conform to EU gas regulations is proceeding as scheduled.

Recall, last week, Gazprom stated the cancellation of
all the litigation against it from the Ukrainian side – as well as Naftogaz of
Ukraine waiving the Stockholm Arbitration Court’s award – should be
preconditions for signing a new gas deal between Ukraine and Russia. Earlier, Russian top officials expressed
their expectations that the Ukrainian side won’t be able to adopt the necessary
EU gas legislation and regulations, in which case the Russian side would be
ready to prolong the existing gas contract for some period beyond 2019.

Alexander Paraschiy: It looks like the Ukrainian side has enough arguments to insist that a
new gas deal with Russia should be concluded under EU rules, and the EU side is
likely to take Ukraine’s side in any talks with Gazprom. However, this does not
guarantee that a new gas deal will be signed by the end of 2019, when the
current contract expires. At the same time, we believe a new deal will be
reached in early 2020, given that Gazprom remains dependent on gas transit
through Ukraine (and the alternative Nord Stream 2 pipeline won’t be ready in
the nearest months).