Ukraine, Russia discuss new gas transit deal at bilateral meeting

Ukrainian and Russian ministers extended talks for a
new natural gas supply contract though Ukraine at a bilateral meeting in Vienna
on Nov. 28, Ukraine’s energy ministry said in a press release that day. Talks
on a new deal will continue in both bilateral and trilateral formats, with the
participation of the EU side, the ministry stated. “Signing of a long-term
transit agreement according to EU legislation and based on economically
justified conditions is a question of energy security not only for Ukraine, but
also for Europe,” the ministry stated, adding that Ukraine has to secure
the stability of natural gas transit for European markets.

Besides several ministers, Gazprom CEO Alexey Miller,
Naftogaz Executive Director Yuriy Vitrenko and Serhiy Makogon, the CEO of a new
transit company Operator of Gas Transit System of Ukraine, participated in the
bilateral talks, as reported by the ukranews.com news site. Gazprom reported
the next day that a bilateral discussion of the technical aspects of possible
gas transit through Ukraine since 2020 were held “at an expert level” on Nov.
29, with the participation of Gazprom and Operator of GTS representatives.

Ukraine is not going to forgive Gazprom its USD 2.6
bln debt obligation under the Stockholm arbitration court rulings of 2017-2018,
the ukranews.com news site said. But as a compromise it is ready to discuss the
revision of a USD 12 bln legal claim against Gazprom (filed with the Stockholm
court), as well as the waiving of a UAH 172 bln (about USD 7 bln) penalty
imposed against Gazprom by Ukraine’s antimonopoly committee. The Ukrainian side
is envisioning a new transit contract being signed for ten years, with Russia
committing to transiting at least 60 bcm of natural gas annually in five years,
with a possible decline in volume afterwards, the news site said, citing its
sources.

Alexander Paraschiy: These
developments look like a real breakthrough in the gas transit talks, given that
it was the first Ukraine-Russia bilateral meeting on natural gas issues since
at least 2014. This increases the probability that the two sides will be able
to agree on a new gas transit arrangement, and possibly gas supply deal, by the
end of 2019. Taking into account this positive development, we are maintaining
as our base case a scenario that Ukraine and Russia will reach a final deal on
gas some time in 2020.