EU-mediated Russia-Ukraine gas talks in deadlock

Russia and Ukraine need a sense of urgency in their talks on gas transit for Europe, the European Union’s energy chief said after the latest round in Brussels on Monday (28 October) failed to yield progress.

The talks took place only weeks before a long-term Russia-Ukraine gas transit contract ends on 31 December, while Russia is stepping up two big pipeline projects circumventing Ukraine: Nord Stream 2, bringing gas to Germany under the Baltic Sea, and Turkish Stream, which will ship under the Black Sea.

In addition, there are a number of obstacles to a new deal, such as a political row between Kyiv and Moscow, a pro-Russian insurgency in eastern Ukraine, and litigation between Russian gas supplier Gazprom and Ukraine energy company Naftogaz.

“My message today in all our meetings … was that the time is flying. And, given the date, there is and there must be a clear sense of urgency,” European Commission Vice-President Maroš Šefčovič told reporters. “I am disappointed by today’s outcome.”

Šefčovič said that the Commission proposed that Russia and Ukraine conclude a transit contract of at least 10 years with a minimum 40-60 bcm/year ship-or-pay clause and possibility to ship additional flexible volumes – between 20 and 30 bcm/year.

Transit tariffs should be set up according to the EU’s methodology.

He also said that after the first five years, there may be a change of methodology in tariff-setting and a special clause should make sure that everybody is comfortable with the transit condition.

Šefčovič also said that the Russian side had complained that not all the documents in preparation of the meeting arrived on time, and that some were not translated.

He also hinted that Russia sought a “package solution” also including a “political” solution over the results from the Stockholm arbitration, and that Ukraine was not ready to discuss this issue.

Moscow and Kyiv have clashed frequently over energy. Talks are complicated by a lengthy legal dispute between Gazprom and Naftogaz that led to a Stockholm arbitration court ruling in February 2018 that each company must compensate the other.

Naftogaz emerged the net winner of that ruling, gaining $2.56 billion from Gazprom. The Russian firm is challenging the decision – a process that could take years.

Šefčovič also said that Ukraine and Russia need to discuss the issues at the highest political level in their capitals, and that the Commission was ready to help broker a deal before the end of the year.

Asked about the risks of a disruption of supplies, the energy union chief said that all sides agreed that this was not an option.

“Both Russia and Ukraine are fully aware what kind of damage this would cause for their image as reliable supplier and reliable transit (country),” he said, adding that the EU is fully prepared for any eventuality. EU underground gas stores are stocked at a reported 90-96%.

Šefčovič hinted that Ukraine plans to have its EU-compatible transmission system operator (TSO) in place for 17 December, but admitted that there is a risk in terms of timing. If a “slippage” in the Verhovna Rada occurred, the EU would help proceed with short-term auctions in the period January-June, as part of a long-term deal, he said.

But Šefčovič also said that what the EU wants to avoid is “playing” with these short-term allocations in order for Russia to avoid a long-term contract.

The trilateral gas talks will continue at the end of November, just a month before the current deal expires, Russian Energy Minister Alexander Novak said after this round wrapped up.

Naftogaz chief executive Andriy Kobolyev told reporters that not much progress was made and that “we had pretty much the same view” as the EU, adding “this proposal is constructive”.

According to Kobolyev, Naftogaz suggested that Gazprom should send a formal communication with its vision of how to settle its nearly $3 billion debt arising from the Stockholm arbitration and address other unresolved issues.

[Edited by Sam Morgan]

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