Page 4 - FSUOGM Week 25

FSUOGM COMMENTARY FSUOGM
Russia-Ukraine gas
dispute grinds on
Gazprom and Naftogaz fail to see eye to eye on several fronts
UKRAINE
WHAT:
Moscow has proposed settling its gas transit dispute with Kyiv out of court.
WHY:
A settlement would remove one obstacle to the two sides agreeing new terms for gas transit starting in 2020.
WHAT NEXT:
The two countries still have some way to go to reach a compromise on future transit.
RUSSIA and Ukraine’s years-long legal battle over natural gas supplies has taken another turn this month, with Moscow proposing to settle the dispute out of court.
e o er came as the expiry of the two coun- tries’ long-term gas transit agreement on January 1 2020 draws ever closer. e two sides are yet to agree a new contract, casting uncertainty on Ukraine’s future role as a major supply route for Russian gas bound for European markets.
Signs of compromise
Russian state gas company Gazprom was ordered by a Swedish arbitration court last year to pay almost $2.6bn to its Ukrainian counter- part Na ogaz for violating their ten-year transit deal signed in 2009. It appealed against the rul- ing, however, leading Na ogaz to seek the arrest of its assets across Europe.
Marking the rst sign of constructive pro- gress, Russian Energy Minister Alexander Novak con rmed at a news conference in Mos- cow on June 13 that Gazprom had o ered Naf- togaz an out-of-court settlement. Resolving the dispute would pave the way for the continuation of Russian gas transit via Ukraine a er this year, he said.
Ukraine transited 86.8bn cubic metres of
Russian gas in 2018 – equivalent to more than 40% of Gazprom’s total sales to European cus- tomers that year. Moscow is looking to divert the bulk of this gas to Germany via its 55 bcm per year Nord Stream 2 pipeline. But while con- struction of Nord Stream 2 is apparently run- ning on schedule (Gazprom reports the pipe is 58% complete), changes in EU regulation and permitting delays in Denmark have cast doubt on whether the project will be ready to operate as planned in late 2019. Further ahead, Russia could make the Ukrainian route largely redun- dant if it manages to bring both strings of the 31.5 bcm per year TurkStream into operation by 2021 as planned.
e stakes are also high for Ukraine and its struggling economy, which relies on gas transit as a key source of income. Na ogaz generated UAH36.5bn ($1.35bn) in revenues from owing Russian gas last year alone. is is by far the com- pany’s most pro table business, accounting for more than 90% of total earnings.
Na ogaz also needs to resolve the legal dis- pute with Gazprom before it can proceed with its $500mn Eurobond placement, aimed at raising investment to support its planned expansion in domestic gas production. It initially intended to place the bonds in November last year, but
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w w w . N E W S B A S E . c o m Week 25 26•June•2019