Gazprom capitulates in gas dispute with Ukraine

A gas dispute between Russia and Ukraine, which began with a record drop in prices in 2013 and translated into a reduction and later suspension of supply, will apparently finally end with Gazprom capitulating.

The Russian gas monopoly is offering to negotiate a deal to resume the direct gas supply to Kyiv, and to extend the contract for transit to Europe that expires in 2019, said Gazprom CEO Alexey Miller.

The gas prices will be lower, he promised: the cost of gas for the end consumer will decrease by 25%. The transit contract, which last year Miller threatened to break off due to an arbitration ruling obligating Gazprom to pay Naftogaz $2.56 billion, may also be extended, the Gazprom CEO added.

“There have not yet been any signals from the new Ukrainian president on gas matters,” Miller lamented, adding that under these circumstances, Gazprom is prepared to discuss transit and supply with members of Ukraine’s Opposition Platform – For Life party, which is led by Russian President Vladimir Putin’s close associate, Viktor Medvedchuk.

Gazprom’s bargaining position has been significantly weakened by difficulties with the Nord Stream 2 gas pipeline project, Moody’s analysts wrote in April.

The construction of the gas pipeline, which was supposed to replace the Ukrainian gas transport system, has been delayed by Denmark, which has not authorized pipe-laying operations in its territorial waters.

This could result in the completion of the project being delayed until 2020, admitted Paul Corcoran, CFO of Nord Stream 2 AG, at the St. Petersburg International Economic Forum on Friday.

The problems surrounding the gas pipeline project may not end. In April, European Parliament adopted a directive which stipulates that the regulations of the third energy package apply to underwater gas pipelines connecting other countries to Europe.

Thus the gas supplier (e.g. Gazprom) may not simultaneously be the owner of the pipe, and independent suppliers must have access to it. This means that Gazprom will only be allowed to use 50% of the pipe’s capacity.

Naftogaz of Ukraine is willing to negotiate, but only in the trilateral format with EU representatives, Naftogaz CEO Andriy Kobolyev told Miller.

Kobolyev pointed out that the Stockholm Arbitration Institute has reconsidered the Russian-Ukrainian contract, declared a number of its provisions “discriminatory”, and ordered Russia to sell Ukraine gas in the first quarter of 2019 at $300 per thousand cubic meters, and at $221 in the second quarter. However, Gazprom has refused to do this, Kobolyev noted.

Instead, the Ukrainian company has been buying gas significantly cheaper in Europe: at $259 in the first quarter, $212 in the second, and $178 in July, the Ukrainian CEO said.

“Under such conditions, will Gazprom, which does not want to supply Ukraine with gas, even at a price that is very favorable to it, agree to a radical decrease? Will it… renounce all arbitration, all non-compliance with European regulations in the gas sector? Such a scenario would actually mean billions of extra profit for Russia, but for Ukraine – losses and a return to complete dependence on the Kremlin,” Interfax-Ukraine cites Kobolyev as saying.

  Ukraine, Russia, Gazprom, Naftogaz, Kobolyev, Europe, Kremlin, Kyiv