Elena Mazneva, Anna Shiryaevskya, Ewa Krokowska
A gas storage facility in Ukraine.
Photographer: Vincent Mundy/Bloomberg
The European Union will seek to ease tension in energy relations between Russia and Ukraine when it hosts three-way talks on natural gas supply, the first since a pricing dispute between the two former Soviet states prompted the government in Kiev to halt purchases last year.
Russian Energy Minister Alexander Novak and his Ukrainian counterpart Ihor Nasalyk will arrive in Brussels on Friday for discussions on sales and transit of the fuel. The talks are being brokered by Maros Sefcovic, the European Commission’s vice president for energy union. In the past two years, the commission has helped ensure smooth supplies of Russian gas to Europe via pipelines crossing Ukraine.
“The EU is eager to broker an agreement between the two, but even in the best-case scenario of a deal, Ukraine is unlikely to lean on Russia as any more than a supplier of last resort this winter,” Emily Stromquist, senior analyst at Eurasia Group, said by e-mail. “Political disputes continue to weigh heavily on negotiations, and Ukraine has demonstrated its willingness to pay a higher price for reverse supplies of gas from its Central and East European neighbors rather than break the impasse and take direct deliveries from Russia.”
Gas-price and debt disputes between Russia and Ukraine disrupted deliveries to Europe during freezing weather in 2006 and 2009. Ukraine carries about 40 percent of Russia’s EU-bound gas across its territory, or more than 10 percent of Europe’s demand for the fuel, making it a linchpin in the continent’s energy security.
Ukraine has coped without purchasing from Gazprom PJSC for a year, the longest it has gone without supplies via Russia since the collapse of the Soviet Union. While gas transit westward continues, the 28-nation EU has signaled it needs a guarantee that flows will remain safe. The three-way negotiations are scheduled to start at 1 p.m. in Brussels and will be preceded by bilateral commission meetings with Russian and Ukrainian officials.
“Given the importance of energy relations between the European Union, Russia and Ukraine, continued dialog is of great importance,” Sefcovic said in a statement on Thursday. “I look forward to the trilateral talks, aiming to contribute at ensuring predictable and stable gas deliveries throughout the winter season.”
According to Russia’s Novak, Ukraine may need an additional 1.5 billion to 4 billion cubic meters of gas soon as its stocks in storage may not be enough for low temperatures. This equals to $270 million to $840 million at prices Ukraine sees for the Russian gas in the fourth and the first quarters.
Ukrainian gas company NAK Naftogaz Ukrainy said on Monday that it had around 13.7 billion cubic meters of gas in storage and expected “a little bit less than 8 billion” will be left at the end of the winter period. While purchases from Russia are halted, the country gets the fuel via reverse purchases from neighboring EU countries.
“Taking into consideration how much gas is supplied from Europe -- and now it is a record high of more than 54 million cubic meters daily -- we may take out of storage 50 million cubic meters of gas daily this winter,” Naftogaz Chief Executive Officer Andriy Kobolyev said this week on Ukrainian television. “So, we can say that we have enough gas in storage. Contract with Gazprom would be nice to have, but it is not critical,” he said.
Naftogaz and Gazprom are waiting for a court verdict on their pricing dispute. The companies filed claims against each other in an international arbitration demanding roughly $30 billion each over their gas supply and transit contracts in effect through 2019.
The Ukrainian company has sought formal amendments to the Gazprom contract to resume imports amid the court procedures. The ruling is expected in the first quarter and Ukraine doesn’t see an out-of-court deal, according to Kobolyev.
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