Naftogaz sees low chance of gas deal in talks today

The Ukrainian and Russian sides will continue negotiations
on a possible natural gas transit deal on Dec. 19 in Berlin, with the mediation
of EU representatives, Interfax-Ukraine reported on Dec. 18, citing a source in
the Ukrainian government. European Commission Vice President Maroš Šefčovič,
who has mediated the talks for several years, expressed on Dec. 19 his hopes
for a breakthrough. “All the parties are sure that the market needs positive
signals,” he commented in a Dec. 19 press conference, as cited by Interfax.

Commenting on a possible deal, Naftogaz of Ukraine
(NAFTO) CEO Andriy Kobolyev told journalists that the probability of signing a
deal by Jan. 1 is extremely low. He also commented on Dec. 18 that if the deal
is not signed in the nearest days, the talks will be renewed only in April-May
2020.

In related news, the Secretariat of EU Energy
Community reported that it adopted on Dec. 17 an opinion that Ukraine’s newly
established gas transmission system operator is unbundled in line with EU legal
requirements. In this way, the GTS operator will operate as an independent
system operator as of Jan. 1.

Alexander Paraschiy: Given that Ukraine has been able to unbundle its GTS operator by the
end of 2019, Russia now has less arguments to avoid signing a new transit deal
with Ukraine based on EU rules. (Recall, Russian top officials have expressed their expectations that this won’t happen, proposing in this case the
renewal of the current 10-year transit deal that expires on Jan. 1.)
Nevertheless, we share Kobolyev’s skepticism of a deal being reached today. And
we are sticking to our expectation that gas deals between Ukraine and Russia
will be signed later in 2020.