Russia plays for time in EU-mediated Ukraine gas transit talks

Trilateral gas talks hosted by Commission Vice-President Maroš Šefčovič. [Europe by satellite]

The EU mediated on Monday (21 January) talks between Moscow and Kyiv on the future of Russian gas transit via Ukraine, the only decision being that the sides agreed to meet again in May.

Russia and Ukraine will meet for further gas talks in May, Russian Energy Minister Alexander Novak said. Ukraine will hold presidential elections on 31 March, the outcome of which is largely seen as unpredictable.

The talks have focused on Russian gas transit via Ukraine to Europe, the source of up to 3% of Ukrainian gross domestic product.

With Russia embroiled in conflict with Kyiv over breakaway regions in Ukraine’s east and the European Union reliant on Russian gas to fuel its industries, the future of gas transit – seen by Kyiv as a crucial guarantor of its independence from Moscow – is the subject of intricate diplomacy.

Russian President Vladimir Putin has said Moscow is ready to keep its transit of gas to Europe through Ukraine once the current deal with Kyiv expires on 31 December 2019 if supplies are economically viable.

Ukrainian state energy company Naftogaz accused Russia of delaying negotiations in order to get its Nord Stream 2 pipeline built first.

Russia’s planned doubling of capacity on the Nord Stream pipeline across the Baltic Sea to Germany could help Moscow bypass exports via Ukraine. That would deny Kyiv transit fees.

Germany to back Nord Stream 2 despite Ukraine tensions

Germany will not withdraw its political support for the Nord Stream 2 gas pipeline with Russia, its foreign minister said on Monday (3 December), as some lawmakers suggested curtailing the project to punish Moscow for its seizure of Ukrainian ships and their crew.

Another project, Turkish Stream, expected to deliver Russian gas under the Black Sea to the European territory of Turkey and to EU countries, would further deplete Ukraine from his role of country of transit.

US warns Hungary and neighbours against Turkish Stream

The US has repeatedly taken position against Nord Stream 2, a Russia-sponsored pipeline planned to bring gas to Germany under the Baltic Sea. But this time Washington took position against another such pipeline, bringing Russian gas under the Black Sea.

“Gazprom is delaying real talks in terms of transit in order to build Nord Stream 2,” Naftogaz Deputy Chief Executive Yuriy Vitrenko told Reuters before the talks on Monday. “Then they will say, ‘We are OK without any Ukrainian transits at all’.”

Russian gas giant Gazprom’s partners in the $11 billion Nord Stream 2 pipeline project include Germany’s Uniper and Wintershall and France’s Engie .

Three-way talks

Sources familiar with Monday’s talks said European Commission Vice-President Maroš Šefčovič, who chaired the three-way meeting with Ukrainian Foreign Minister Pavlo Klimkin and Novak, had floated a proposal for the two countries to agree a new 10-year transit contract, with a guaranteed minimum yearly transit volume of 60 billion cubic metres per year (bcm/y) and 30 bcm/y of additional flexibility.

“Russia is playing for time and waiting for political change in Ukraine,” Klimkin tweeted.

Klimkin said Ukraine wanted a contract under EU rules because it has adopted European legislation, whereas Russia was pushing for one under old regulations.

In a tweet on his ministry website, Novak said “the existing legislation allows Ukraine to extend the existing contracts”.

Novak added: “We have time until the end of the year to agree approaches on
gas transit from January 1, 2020.”

Šefčovič said it was “important” that Novak had stressed that Russia is ready to continue using the Ukraine transit route.

Moscow and Kyiv have clashed frequently over energy. Talks are complicated by a lengthy legal dispute between Gazprom and Naftogaz that led to a Stockholm arbitration court ruling in February 2018 that each company must compensate the other.

Šefčovič said the Stockholm arbitration was the “elephant in the room”.

Naftogaz emerged the net winner of that ruling, gaining $2.56 billion from Gazprom. Gazprom is challenging the decision – a process that could take years.

“For the Russians, it is a huge stumbling block,” Šefčovič said. “For them, it is difficult to negotiate a good contract for the long term when they are still fighting the legal claims.”

“Time flies and every day we are getting closer to the end of 2019 when the
current contract expires,” Šefčovič said.

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