Ukraine, Russia sign 5-year gas transit agreement

BUCHAREST (ICIS)–Ukraine and Russia have signed a five-year transit agreement for minimum guaranteed volumes from 2020, Ukraine’s Naftogaz confirmed late on Monday night.

Under the deal, the minimum volumes will be 65 billion cubic metres (bcm) /year in 2020 and 40bcm/year between 2021-2024.

The package of agreements signed in Vienna on 30 December after five days of continuous negotiations include:

– An inter-operator agreement between the new transmission system operator of Ukraine, GTSOU, and Russian producer Gazprom defining technical regulations and rules of the interconnection agreement

– An agreement between Ukraine’s incumbent Naftogaz and Gazprom spelling out the conditions and volumes of transit for the next five years. Under the agreement Naftogaz will in fact book capacity for Gazprom and shoulder transit-related risks

– A settlement of legal claims arising from the existing ten-year transit agreement which expires at the start of the gas day on 1 January 2020.

The transit will follow the ship-or-pay principle, a provision in gas contracts whereby a buyer agrees to pay for contracted transport capacity regardless of actually transported volumes.

The agreements are the culmination of extensive rounds of negotiations in recent weeks whereby Gazprom committed to settling an outstanding debt of $2.9bn to Naftogaz as part of the Stockholm transit arbitration award of February 2018. Naftogaz confirmed receipt of the money on 27 December 2019.

For its part, Naftogaz is expected to drop pending arbitration lawsuits and attempts to freeze Gazprom’s property, assets or cash in a bid to recoup money owed by Gazprom.

NOT INCLUDED

The deal does not include direct supplies of Russian gas to Naftogaz, although the Ukrainian incumbent said it had noted Gazprom’s interest in resuming deliveries to the country based on German NCG hub prices.

The agreements do not address the lawsuits filed by the Naftogaz Group against the Russian Federation regarding the captured assets of the group in Crimea.

In a statement to the press, Ukrainian president Volodymyr Zelenskyy said the deal would help Ukraine to rake in more than $7bn over the next five years. He said the deal could be renewed for another 10 years from 2025.

Russia’s Gazprom said the agreements were part of a “big package aimed at restoring the balance of interests of the parties.”

TURKSTREAM

Under the transit deal, Ukraine is expected to ship most of gas to central Europe and the Republic of Moldova.

It has already signed interconnection agreements with Hungary, the Republic of Moldova, Romania and Poland. It was also expected to sign an interconnection agreement with Slovakia, although it was unclear whether this had been completed by 30 December. Slovakia itself as a long-term transit agreement with Gazprom which is due to expire in 2028.

However, Ukraine is to lose its historical transit role for Russian gas to southeast Europe and Turkey.

This is because Russia is to bring online TurkStream , a 31.5bcm/year two-string pipeline corridor linking Russia to Turkey across the Black Sea.

On Monday, Bulgaria said it would no longer receive Russian gas via the Trans-Balkan pipeline which crosses Ukraine and Romania.

Instead, it would start off-taking gas via TurkStream which will be inaugurated by the Russian president Vladimir Putin in Turkey on 8 January 2020.