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    Ukraine Route 'Must be Competitive': Novak

Summary

But until the annual volumes are known it will be hard to set tariffs, and talks about tariffs seem to depend on Russia winning an appeal against the Stockholm arbtiration.

by: Dalga Khatinoglu

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Ukraine Route 'Must be Competitive': Novak

How much Gazprom uses the Ukrainian gas pipeline system will depend on how competitively it is priced relative to its own Nord Stream (NS 1&2) and TurkStream (TS) pipelines, the Russian energy minister Alexander Novak said January 21.

He was speaking after the latest round of three-way talks in Brussels involving Russian pipeline gas export monopoly Gazprom, Naftogaz Ukrainy – which are both owned by their respective governments – and the European Commission.

Gazprom cut flows through Ukraine slightly in 2018, but the Ukrainian route still accounts for 43% of Russian gas flows to Europe, according to analysis published by NGW earlier this month. The transit agreement expires end-2019, roughly when NS2 and TurkStream are due to start.

Novak told Rossiya-24 TV that Russia is continuing talks with Ukraine on the transit agreement extension, but the volume depends on commercial competitiveness of the route.

Legal dispute grinds on

Commenting on their legal disputes, Novak also reportedly said: "Gazprom is working [on claims], and we expect consideration by an appeal instance in the Swedish court in the near future."

Further detailed discussion of Russian gas transit through Ukraine after 2019 will only be possible after the settlement of litigation between Gazprom and Naftogaz, Novak added. However a number of European courts already consider the argument decided and that Gazprom has to pay the $2.6bn that Stockholm awarded Naftogaz.

While Novak's statement on the price would normally be a routine observation by a customer, Russia is under pressure to extend the terms for perhaps a decade. It is expected to ship less gas through Ukraine once NS 2 and TS start up, later this year according to the timetable, but the new Ukrainian tariffs are yet to be discussed. 

No gas transit agreements can have had as many political ramifications as this one. UK researcher Simon Pirani pointed out last year in a paper that the next transit terms need to be agreed before the present contract expires,  but the talks are taking place in an extremely hostile atmosphere.

He wrote that failure to agree could mean interruptions to gas supplies westwards, which would not only be bad news for certain countries in central Europe but also a major setback for the gas industry’s efforts "to raise its status as part of Europe’s energy supply future."