Ukraine, Russia Agree Gas Transit Terms (Update)

(Updates with EC confirmation, other details)

Russia and Ukraine have signed agreements covering the supply of Russian gas to Europe through Ukraine, according to the European Commission. Commissioner Maros Sefvovic, who continued brokering talks between the two sides after he ceased to be commissioner for the energy union in November, tweeted December 20: "TrilateralGasTalks: Done and dusted. Pleased to have signed the well-balanced agreement that is essential for ensuring an uninterrupted transit of Russian gas to Europe via Ukraine. Everyone is a winner today."

The two sides reached an agreement in principle on future gas transit on December 19, following EU-brokered talks in Berlin. An English-language translation of the signed protocol, with the dates for achieving critical goals, can be read here.

Alexei Miller, Gazprom CEO, had consistently stuck to his line that the award was asymmetrical and political and would not be paid. But Russia's president, Vladimir Putin, said that although it was a political judgement, it would be paid, thereby removing a deal-breaker.

“The Russian and Ukrainian sides have signed the protocol of the agreements about continuation of gas transit through Ukrainian territory and settlement of mutual claims,” Gazprom spokesman Sergei Kupriyanov has reportedly said.

Russia’s deputy prime minister Dmitry Kozak has been cited as saying by Moscow-based RIA Novosti that a final transit contract is expected to be signed by the new year, covering a five-year period.

As of January 1, a new company will be formed to manage transmission: Magistralnye Gazoprovody Ukrainy (MGU) which has been certified as an EU-compliant independent transmission system operator, separate from state gas marketer Naftogaz and Ukrtransgaz, which retains the opaque legacy contracts. But the tariffs have not yet been published.

Ukraine had been pushing for a longer deal, whereas Russia had been seeking a deal as short as one year. The decision by Allseas to halt pipeline laying operations in the Baltic Sea, in response to US sanctions, adds further uncertainty to the transit volume and duration questions. The 55bn m³/yr pipeline might have been finished by the summer of 2020, but that is not now a given. The pipeline's operator, Switzerland-based Nord Stream 2, declined to comment on the effect sanctions might have on the timeline.

Only two days earlier, the CEO of Naftogaz, Andriy Kobolev, had told a briefing that the chances of reaching a deal with Russia by the year-end were close to zero. That pushed up the winter gas price at European hubs, although the large quantity of cheap LNG, and the record amount of gas in European storage, would have limited the effect of the statement.

Ukraine's political leaning towards the European Union and its reliance on revenues from Russian transit, and Russia's need for revenues from its highest-margin market, were expected to keep the gas flowing westwards, even if all the terms and conditions were not yet approved by January 1. Both sides emerged badly from the cut-off in flows in 2006 and 2009, events that still colour the discourse on European gas supply security today.