Russia and Ukraine finalise gas deal just ahead of New Year deadline

File photo. Ukraine's Naftogaz's CEO Andriy Kobolyev speaks to the press after a Trilateral Gas Talks between the European Union, Russia and Ukraine at the EU Commission headquarters in Brussels, Belgium, 28 October 2019. [Stephanie Lecocq/EPA/EFE]

This article is part of our special report Ukraine gas transit: What’s at stake.

Moscow and Kyiv on Monday (30 December) signed a five-year agreement on the transit of Russian gas to Europe via Ukraine, after months of difficult talks but just ahead of a looming New Year deadline.

The current gas transit deal between the two ex-Soviet countries expires Tuesday and ties between them have been shredded since Moscow annexed Crimea in 2014 and supported a separatist insurgency in eastern Ukraine.

Some 18% of the European Union’s annual natural gas consumption comes from Russia via Ukraine, putting additional pressure on EU officials who helped to broker the deal.

“Ukraine has signed a five-year transit contract,” Ukrainian President Volodymyr Zelensky announced on his Facebook page, nearly two weeks after a provisional deal was agreed.

“A whole complex of documents has been signed,” allowing “the transit of gas after 31 December,” Alexei Miller, the boss of the Russian gas giant Gazprom told Russian media.

It is expected that Gazprom will transit at least 65 billion cubic meters of natural gas via Ukraine next year, then at least 40 billion per year from 2021 to 2024, said Zelensky, earning Kyiv “more than seven billion dollars”.

Other details unveiled by Ukraine’s Naftogaz include the $2.918 billion compensation paid by Gazprom under the Stockholm Arbitration Awards of December 2017 and February 2018, which was received by Naftogaz on 27 December 2019, as well as a withdrawal from all arbitration proceedings where final decisions have not been rendered yet.

The EU has mediated in the difficult Ukraine-Russia talks.

“We have demonstrated Ukraine’s reliablility as a transit partner for the EU. Our team is grateful to the European Commission for its consistent position and certifying that the Ukrainian GTS is reliable and efficiently managed. We are also grateful to the US for their firm support of energy security in Europe,” Naftogaz CEO Andriy Kobolyev said.

Last year Russian gas giant Gazprom supplied Europe with 200.8 billion cubic metres of natural gas, with about 40% going through Ukraine, earning the country around $3 billion a year in transit fees.

Russian President Vladimir Putin said earlier this month that Moscow wanted to keep some gas flowing through Ukraine, despite having built several pipelines to Europe since the current deal was agreed a decade ago.

It comes days after Russian energy giant Gazprom paid $2.9 billion to Ukraine’s Naftogaz to settle a long-running dispute over transit fees, in what had been a major stumbling block to agreeing the new deal.

Russia’s gas pipelines include the Nord Stream 2 project due to be completed by the end of next year, which seeks to double gas volumes to Germany.

The United States has long opposed the €9.5 billion project and the US Senate voted last week to slap sanctions on companies working on it.

How US sanctions could hit Russia's Nord Stream 2 gas project

US President Donald Trump imposed sanctions last week on the Nord Stream 2 pipeline designed by Moscow to bypass Ukraine and increase gas supplies via the Baltic Sea to Germany, Russia’s biggest energy customer.

Washington insists the pipeline would give Russia too much influence over security and economic issues in western Europe.

As EURACTIV revealed, the US is also ready to impose sanctions to any additional lines to Turkish Stream pipeline.

Additional line to Turkish Stream would face US sanctions

EXCLUSIVE: US sanctions will apply to any additional lines to the Russia-sponsored pipeline Turkish Stream, EURACTIV has learned. Serbia has already competed and Bulgaria is building expensive infrastructure to import gas from Turkish Stream and carry it further to Hungary and Austria.

Transit problems for Russian gas began after the fall of the Soviet Union when an independent Ukraine won control of the pipeline infrastructure.

Several supply crises followed, with Russia using gas as a weapon against Ukraine and cutting supplies repeatedly in 1992, 1993 and 1994.

The current contract between Russia and Ukraine was signed following the last gas crisis which ended up disrupting European supplies in the winter of 2008-2009.

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