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Russia and Ukraine Signal Progress on Natural Gas Transit Deal

Olga Tanas, Ewa Krukowska and Dina Khrennikova
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Russia and Ukraine Signal Progress on Natural Gas Transit Deal

(Bloomberg) -- Russia and Ukraine signaled progress toward an agreement to transport natural gas into Europe, saying they sketched out the legal framework for a deal that needs to be in place by the end of the year.

Energy ministers from the two nations met in Brussels with European Union officials and agreed to meet again before the end of October. All voiced optimism that they could overcome tensions that have threatened to snarl work on contracts needed to ensure gas keeps flowing.

Benchmark gas prices fell as concerns eased about a halt to flows through one of the biggest routes for gas tapped in Siberia to the market. While at least 14 countries get half their gas from Russia, supplies this year are abundant and warmer than usual weather has curtailed demand.

“If the European regulation is indeed implemented, we are ready to work in line with the European rules” and book transit capacities, Russia’s Energy Minister Alexander Novak told reporters in Brussels. “Today’s consultations showed the parties have a positive attitude and are aiming to find solutions, make sure gas flows are not interrupted from Jan. 1.”

Ukraine’s Energy Minister Oleksiy Orzhel confirmed his country will work to create an independent gas shipment operator. According to Novak, that should be done by Dec. 1, a month before the current deal expires, so that it’s possible to book capacities for next year.

Long-standing price and debt disputes between Russia and Ukraine have twice disrupted winter gas deliveries to Europe over the past 13 years. Ukraine’s adoption of the EU energy regulations would remove the risk of further spats and disruptions, creating a stable and flexible legal framework for Russian gas flows to the bloc.

Russia, Ukraine and the EU “agreed to return to the table at the political level by the end of October,” Maros Sefcovic, the European Commission’s Vice President for Energy Union, who has been brokering the talks, said on his Twitter account.

To be sure, Ukraine’s plan to promptly adopt EU energy rules has faced some skepticism in Russia. The future Ukrainian gas pipeline operator needs to be certified by the European Energy Community, Gazprom PJSC Chief Executive Officer Alexey Miller told Rossiya 24 TV Channel.

“If one takes the certification process seriously, not formally, it may take a lot of time,” Miller told reporters in Brussels. “If there is no certified operator by Jan. 1, 2020, the only possible option in such conditions would be to extend the current gas transportation agreement.”

As Ukraine is reluctant to extend the current transit deal, a delay might mean disruptions in Russian gas flows to Europe. Both Gazprom, Ukraine and the European Union are now injecting record volumes in their storage sites to prevent supply shortages, Miller said.

On Tuesday, Naftogaz announced it signed an agreement with a “big international trader” to buy 450 million cubic meters of gas in the first quarter of 2020. The company said it already contracted needed supply volumes and is considering “several other offers from European traders” on supply next year.

Gazprom also intensified stockpiling. With low hub prices earlier this year encouraging storage, European facilities are more than 95% full more than a month before withdrawals typically start.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net;Ewa Krukowska in Brussels at ekrukowska@bloomberg.net;Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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