Natural gas transit problems in Ukraine may be easier

Despite the obviously low interest in domestic political transactions in Ukraine, the issue of Ukrainian gas transit remains a hotly debated topic of the European energy community (European countries naturally want to find a viable solution for the Russian gas pipeline).

The gas transit of Ukraine was on the carpet during the recent Putin-Trump talks in Helsinki, where the Russian president assured his counterpart that Moscow would maintain the transit route even after 2019, when the current contract of 10 years falls short of. Analysts have long argued that such a result would be very timely and recent developments induced by Brussels point to a potential consensual solution.

Russia, Ukraine and the Energy Directorate of the European Commission held tripartite talks on ways to solve the limbo of gas transit in Ukraine. The history of the back was quite discouraging – Russia had to go back on its previous promise of completely canceling the Ukrainian gas transit by 2020 and now identifies 10-15 BCm / year as transit volume optimal (although it will probably need 20-30 BCm / year, even after Nord Stream 2 and TurkStream have been ordered.)

Ukrainian political leaders are also in a difficult position because they have invested too much political capital to represent Russia as the ultimate cause of all the ills of Ukraine. yet he desperately needs transit income to finance his sick budget.

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The results of trilateral negotiations are extremely positive – it seems sincerely that assuming political responsibility in case the talks fail, Brussels has managed to solve one of the major shortcomings of the Russian-Ukrainian relationship recently, namely, that everything is used as an argument in a perpetual blame game.

In addition, it seems that the EU intends to see through the end of the implementation of EU energy regulation. unbundling, are a positive development. The parties agreed that it will not be Naftogaz, the traditional partner, which will be included in the final configuration of gas transit, but a new network operator, unbundled for the specific needs of gas transmission.

Unbundling attempts by the gas transmission system operator can be described as chaotic. After several years of waiting, the Ukrainian government postulated in June 2017 that the current assets of the gas transmission network be transferred to PJSC Trunk Gas Pipelines of Ukraine (Mahistralni Gazprovody Ukrainy, MGU), but the The current operator Naftogaz remains in the transmission sector. or another and has delayed implementation for some time now. Naftogaz has even created a new entity under its umbrella, the Ukrainian gas transmission network operator, thus creating a situation in which two potential grid operators are competing for their place in the sun.

Naftogaz tried to anchor the unbundling process with Stockholm's arbitration decision on the Gazprom transit contract, despite significant pressure from the European Commission to pursue the track laid down. It is important to remember that a total of $ 1 billion was granted to Kiev provided that it reformed its gas transmission network and created an independent grid operator.

The Ukrainian government is also trying to blur the situation – even though it has created a new entity, MGU, it is not prepared to privatize it. The ensuing disorder is understandable in some way, since gas transit was traditionally the only for-profit segment of Naftogaz's activities and has been used for many years as a cross subsidy to maintain the Company afloat

. discussions seem to signal a palpable change in attitude. Naftogaz suggested lowering the transit fees, taboo years, to increase the competitiveness of the Ukrainian transit network, from $ 2.50 / MMC / 100 km to $ 2.17 / MMC / 100 km.

wants to establish a volume attachment to the given formula. Ukraine's expectations in this regard are somewhat fanciful, as its considerations are based on the assumption that annual transit flows would amount to 141 billion cubic meters per year, which means that They do not see the 55 BCmpa Nord Stream 2 under construction. In addition, Ukraine is betting on Moscow by putting an end to Gazprom's export monopoly (after NOVATEK has been entrusted with the role of leading LNG exporter in Russia) and letting in the suppliers. of Central Asian gas, which is very ambitious.

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Given the above, the task ahead is quite simple, c & # 39; that is, to find an acceptable volume threshold for both parties. Something in the range of 40 and 50 BCm per year could be a consensual number – the 93.5 BCm transited in 2017 will inevitably fall after Nord Stream 2 comes online. However, several volumes of Nord Stream will cover a demand that was not previously included in Gazprom's export allocation, offsetting the decline in Dutch production or the increase in German demand

. Russian Minister of Energy A. Novak estimates that European demand will increase by 17% -25 BCm in the next five years, so even after Nord Stream 2 has destroyed half of the current Ukrainian gas transit, there will be sufficient demand for the remaining volumes.

Russia needs Ukraine as a backup gas conduit, but in the same way that Ukraine does not want to risk a loss-of-face settlement. In the current state of affairs, sooner or later Gazprom will have to accept the arbitration decision in Stockholm and pay, if it is the 2.6 billion dollars decided in February, a part of the sum (in because of their appeal mitigating certain factors).

It is also conceivable that Moscow suggests reaching an amicable settlement will materialize at some point. Overall, by shifting the legal basis of the next transit agreement in Brussels and integrating it with current EU regulatory approaches, both parties will benefit. Now, Moscow and Kiev must both lead the negotiation process so that one of the biggest energy impasses in Europe can finally be solved.

By Viktor Katona for Oilprice.com

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