Page 4 - FSUOGM Week 01 2020

FSUOGM COMMENTARY FSUOGM
Ukraine, Russia strike five-
year gas transit deal
The new deal is compromise between the two sides in terms of volumes and duration
UKRAINE
WHAT:
Ukraine and Russia reached a new five- year gas transit deal on December 30, a day before their previous contract expired.
WHY:
The deal will see Russia send at least 65 bcm
of gas via Ukraine in 2020, followed by 40 bcm per year in 2021- 2024, representing a compromise between the two sides.
WHAT NEXT:
Ukraine will only resume buying gas from Russia when political relations have sufficiently improved.
UKRAINE and Russia finally agreed a new five- year gas transit deal late on December 30, just one day before their previous contract had been due to expire, averting a potentially major dis- ruption to European gas supplies.
A package of agreements was signed between Russian gas company Gazprom, its Ukrainian counterpart Naftogaz, and the newly-formed Gas Transmission System Operator of Ukraine (GTSOU), set up last month to manage Ukraine’s pipelines. The main transit deal requires Rus- sia to send at least 65bn cubic metres of gas via Ukraine in 2020, compared with 90 bcm in 2019. The minimum requirement will then drop to 40 bcm per year in 2021-2024.
In addition, Gazprom has agreed to pay Naf- togaz $2.9bn relating to a previous Stockholm arbitration award, for violating the pair’s 2009- 2019 transit contract. The Russian firm previ- ously contested the award, prompting Naftogaz to seek the arrest of the former’s assets across Europe. These asset arrests will be cancelled.
All other claims and counter-claims between the two companies that have not yet been ruled on in court will be dropped.
An interconnection agreement between GTSOU and Gazprom establishing technical procedures and rules for co-operation in the operation of networks was also reached.
Gazprom CEO Alexei Miller said the
agreements “represent a major package deal that has restored the balance between the interests of the parties. These documents are coming into effect today, ensuring the transit of Russian gas across Ukraine after December 31, 2019.
“Gazprom has done everything in its power, once again proving its reputation as a responsible supplier and a reliable partner,” he said.
Naftogaz added in a statement that “the cer- tainty of future gas transit creates a necessary environment for continuation of the domestic gas market and broader energy reforms, secures gas transmission jobs and future contracts with Ukrainian industrial producers related to the maintenance of the Ukrainian gas transmission system.”
Naftogaz noted, though, that the deals did not affect its claims against Russia regarding the loss of assets in Crimea, seized by Moscow in early 2014.
Both sides can now breathe a sigh of relief.
Ukraine will continue collecting revenues from Russian gas transit, which in some years have reached as high as $3bn, accounting for about 4% of its GDP. The drop in Gazprom’s committed volumes especially after 2020 will naturally sting the country’s finances, however.
A disruption in gas transit would have also caused supply outages in some of Ukraine’s east- ern regions.
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