Russia and Ukraine in EU-backed talks to avoid fresh ‘gas wars’

A worker checks equipment at the Dashava gas storage near western Ukrainian town of Stryi, 14 February 2017. [EPA/PAVLO PALAMARCHUK]

Officials from Moscow and Kyiv were set to gather in Berlin on Tuesday (17 July) for EU-backed talks on the future of the transit of Russian gas through Ukraine in a bid to minimise disputes when the current contract expires next year.

Russian gas giant Gazprom has already dramatically reduced the volume of gas transiting via the country, as Moscow and Kyiv remain at loggerheads over the annexation of Crimea and simmering conflict in the east of Ukraine.

Kyiv fears the loss of revenue from transit taxes, on top of being bypassed politically as well as physically by new gas pipes.

The meeting will bring together delegations from Gazprom and its Ukrainian counterpart Naftogaz, which have been locked in legal battles for years.

Russian Energy Minister Alexander Novak and Ukrainian Foreign Minister Pavlo Klimkin will also be present.

“It is clear that time is of the essence. The negotiations that lie ahead of us are complex,” said European Commission Vice President Maroš Šefčovič ahead of the talks.

Ukraine ambassador: Tsarist and KGB mentality don’t change with time

Ukraine’s Ambassador to the EU, Mykola Tochytskyi, explains in an interview with EURACTIV why Kyiv is against the planned Nord Stream 2 pipeline. He also talks about Ukraine’s relations with Brussels and its complicated ties with Moscow.

The meeting will focus on Gazprom’s plan to construct and put into operation by the end of next year the Nord Stream 2 gas pipeline, which would bring gas to Germany via the Baltic Sea, bypassing Ukraine.

The pipeline will follow the track of the existing Nord Stream 1 and will double the amount of Russian gas arriving in the European Union’s most powerful economy via this route.

Germany has long insisted this is a purely “commercial” project and in March lifted the final obstacles to its construction.

But the following month German Chancellor Angela Merkel delivered an unexpected blow to Moscow’s strategic initiative, insisting Ukraine should continue to play a key role in the transit of gas to Europe.

“There are also political factors to take into consideration,” Merkel said at a joint press conference in Berlin with Ukrainian President Petro Poroshenko at the time.

“(Nord Stream 2) is not possible without clarity regarding the transit role of Ukraine,” she said.

Merkel: No Nord Stream 2 without guarantee for Ukraine's gas transit role

German Chancellor Angela Merkel said today (10 April) that plans for a controversial second underwater pipeline to bring gas from Russia could not go forward without Ukrainian involvement in overland transit.

For his part, the Ukrainian president said the project was “absolutely political”.

“Why spend tens of billions of dollars to make the European economy less efficient, less competitive and the energy politics of the EU more dependent on Russia?”

Criticism from Trump

The project has also been criticised by US President Donald Trump.

The United States has an interest in selling shipped liquified natural gas (LNG) to Europe, but for the moment this is much less economically viable than Russian gas.

“So we will be selling LNG and competing with the pipeline. I think we’ll compete successfully. Although there is a little advantage location-wise,” Trump said after meeting with Russian President Vladimir Putin in Helsinki on Tuesday.

Trump’s submission to Putin stuns EU allies

The political class in the US, as well as many of Washington’s European allies were astonished to watch Donald Trump playing into Vladimir Putin’s hands at the Helsinki summit on Monday (16 July).

Another project, the Turkish Stream pipeline, is further set to reduce the role of Ukraine in gas transit.

But Putin was conciliatory, saying Russia was ready to keep up transit via Ukraine after Nord Stream 2 becomes operational and extend the transit agreement.

Putin said this was possible if Ukraine’s national gas company Naftogaz and Gazprom resolve their gas dispute at a Stockholm arbitration court.

European demand for gas has been rising since 2015, largely because of a drop in production in the Netherlands.

Last winter Gazprom raised exports to the continent to a record high thanks to the cold weather.

On the record day of 2 March, gas pipelines delivering Russian gas to Europe were working at up to 99%  of their capacity, said researcher Jack Sharples in a recent publication by the Oxford Institute for Energy Studies.

Europe grapples with Dutch gas production ‘collapse’

For the first time, the Netherlands became a net importer of gas last year, reflecting the inexorable decline in production from Europe’s North Sea fields – an issue EU policymakers are only starting to come to terms with.

What happens now

“Gas transit via Ukraine will continue to be necessary in substantial volumes throughout the year until Nord Stream 2 and Turkish Stream are launched,” he said.

But after that the role of Ukraine would depend on an agreement reached with the European Commission or the demands of clients, he added.

Thierry Bros, a researcher at the Oxford Institute for Energy Studies, said the sides must not only reach an agreement about what happens after 2019, but also what happens now – given that Gazprom is turning to the courts to demand the annulation of its current contracts with Ukraine.

“Now a global contract must be reviewed with two unknowns – the Nord Stream 2 project and the transit tariff, since we do not know what Ukraine will propose,” he told AFP.

“If this were just a commercial question, Ukraine would be able to make Nord Stream 2 uncompetitive by lowering its own transit tariffs,” he said, though in fact Kyiv is asking in courts for the rate to be increased to make up for the decline in volume.

Academic: ‘Huge progress’ in EU gas markets but supply still an issue

The integration of European gas markets has made strides over the last fifteen years, bolstering energy security in Eastern EU countries as a result, says Jonathan Stern. But the collapse of Dutch production means Russia will probably remain at the centre of the game for years to come, he cautions.

 

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