Ukraine wants to return Gazprom in the nineties

Moscow, under Washington's pressure, is prepared to retain only a small part of its gas transit through Ukraine.
July 17 in Berlin will begin the first round of trilateral negotiations on the fate of Ukraine as a transit country for Russian gas after 2019. For the beginning of Russia, Ukraine and the European Commission to determine the range of issues discussed, which can be very broad. Thus, on July 16, Vladimir Putin linked the continuation of transit with the completion of disputes between Gazprom and Naftogaz Ukrainy in Stockholm arbitration. Naftogaz, on the contrary, suggests that Moscow, among other things, abolish the export monopoly of Gazprom and raise the volume of transit to the level of the 1990s.

The new negotiations between Russia, Ukraine and the European Commission, which will begin on July 17 in Berlin, reflect the next stage in reducing the role of Kiev in the transit of Russian gas. If immediately after the collapse of the USSR more than 90% of gas exports from Russia passed through Ukraine, then after the introduction of the Yamal-Europe gas pipelines through Belarus to Poland and the Blue Stream to Turkey, this level dropped to 75%, and with the construction of the first "North Stream" "- up to about 50%. Now the construction of Nord Stream 2 and the Turkish Stream threatens to reduce Ukrainian transit to 20-30 billion cubic meters per year (10-15% of Russian exports to Europe), and the situation for Kiev becomes painful, as it requires reforming the gas transportation system (GTS) and reducing pipeline capacity several times.

Ukraine's position before the talks is that the process of reducing transit must be reversed. On July 16, Naftogaz published its proposals on transit tariffs after the expiration of the current contract with Gazprom after 2019. Naftogaz is ready to lower the transit rate from the current level by 20%, to $ 2.17 per 1,000 cubic meters per 100 km, if the volume of transit grows to 141 billion cubic meters per year, that is, to the level of 1998. According to Naftogaz, this is possible if Russia stops blocking gas supplies from Central Asia and abolishes Gazprom's export monopoly. The head of Naftogaz, Andrei Kobolev, said that these rates are lower than in the Nord Streams.

The last statement is clearly not true. The rate for Nord Stream-1 in 2017, according to Kommersant estimates, was about $ 1.7 per 1,000 cubic meters per 100 km. According to the "Nord Stream-2" it will be in the region of $ 2 even without taking into account the fact that the project is entirely owned by Gazprom and it will pay for the transit itself. The technical ability of the Ukrainian gas transportation system to take 140 billion cubic meters is also questionable, says Maria Belova from Vygon Consulting. She recalls that Naftogaz filed a new lawsuit against Gazprom against the Stockholm arbitration and requires $ 11 billion in compensation for the depreciation of the GTS due to the termination of transit after 2019. "It's like a proposal - do not want to repay $ 11 billion, pump 140 billion cubic meters," Belova believes, noting that the approach "does not stand up to common sense checks."

The Russian side, apparently, will also raise the issue of arbitration at the talks. On Monday, Vladimir Putin, commenting on the topic of "North Stream-2" at a joint press conference with US President Donald Trump, said that Russia was ready to extend the transit contract with Ukraine "in case of settling the dispute between business entities at the Stockholm Arbitration Court". In addition to the aforementioned suit of Naftogaz, there is an appeal by Gazprom to the two previous arbitration awards, which is currently under consideration, and the decision is unlikely to be made before the end of 2019. If Russia really intends to link the achievement of an acceptable agreement on all these disputes with Naftogaz with the extension of transit, the negotiations may be even more difficult than one might have imagined.

However, while Moscow negotiates a tactical task in the course of negotiations - it confirms its promise not to nullify transit through Ukraine, on the security of which Germany agreed to support the "Nord Stream-2". Berlin's support is needed, in particular, in order to persuade Denmark to give permission to lay a pipe through its territorial waters - this is now the only obstacle to the construction. The launch of the gasket will immediately strengthen Gazprom's position in negotiations with Ukraine.