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Russia-Ukraine Finalize Key Gas Deal

Gazprom and Ukraine’s Naftogaz finally reached a deal on the transit of Russian natural gas through Ukraine to Europe.

TASS quoted Gazprom chief executive Alexei Miller say saying, "After continuous bilateral talks, which lasted for five days in Vienna, final decisions and agreements have been reached. We have signed a number of agreements and contracts, and they are in reality a significant package deal, which has restored the balance of interests of both sides."

There was concern in Europe that the two may fail to reach an agreement that would affect Russian gas deliveries to Europe given the tense political relations—and legal disputes—between the neighbors but, once again, pragmatism seems to have prevailed.

The good news for Ukraine, for whom gas transit fees are vitally important, is that the agreement includes stipulations about guaranteed volumes of gas that Gazprom will send across Ukraine. These are 65 billion cubic meters for 2020, falling to 40 billion cubic meters for the period between 2021 and 2024.

The good news for Gazprom is that Naftogaz will waive its claims to the 2009 contract between the companies as would Gazprom itself. The waivers might finally put an end to the legal saga that has been dragging for years. During these years, Naftogaz accused Gazprom of failing to supply the agreed volumes of gas while Gazprom accused Naftogaz of not paying for all the gas it received.

"The withdrawal of all existing appeals and claims on behalf of both sides” was part of the terms of the five-year contract, the executive director of Naftogaz, Yury Vitrenko said.

BNN Bloomberg quoted Ukraine’s president, Volodymyr Zelensky, as saying that under the new contract, Kiev will receive some $7 billion from transit fees.

According to Reuters, Gazprom has a 36-percent share of the European natural gas market, with European exports outside the former Soviet Union averaging 200 billion cubic meters. Of this, 86.8 billion cubic meters were transited through Ukraine last year.

By Irina Slav for Oilprice.com

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  • Jim Miceli on December 31 2019 said:
    Well I think the New Year will bring dollars and makes no cent why N.G. is cheap. Think that's going to make me spring for a New Gas Stove like the Landlady said just because this is a Brick House means nothing. Then on top of that the Fire Alarm system is piped into the local Fire Dept.. Every time some gets a bugged , the alarm goes off and here comes the Tanker. Hook me ladder. So anyway if Russia thinks I'm keyed in forget it. Like I finally narrowed the playing field this afternoon. Time to tell ya all that it is (HGH) , (HIG-G) , (BCV) and yes Mr. Gates , micro to milli , (IBM). Dogged again. The Dividends will keep the accountant happy. The De vinci is in one of my Email Account Folders. April is coming. Happy New Day Earthlings. Get down to it s/Jimmy The Tapper. 1231/19 5:25 p.m. Hrs.. and counting.
  • Mamdouh Salameh on December 31 2019 said:
    The recent 5-year agreement between Russia and Ukraine on the transit of Russian gas supplies to the European Union (EU) via Ukraine starting 1 January 2020 is a victory for compromise and diplomacy as it protects the mutual interests of both countries economically and geopolitically. It also paves the way for an improvement in the strained relations between the two countries.

    Under the new contract, Ukraine is expected to allow the shipment of a minimum 65 billion cubic metres (bcm) of Russian gas supplies across its territory to the EU starting the 1st of January 2020 with volumes decreasing to 40 bcm in 2021-24. In return, Ukraine will earn an estimated $7 bn in gas transit fees during the life of the agreement.

    Russia must pay the minimum gas-transit fee even if it doesn't pump the contracted volumes through Ukraine. Additionally, transit fees for additional volumes beyond the minimum amount would substantially increase. The agreement also ensures that Russian gas flows via Ukraine to the EU will not be disrupted. Russia has twice cut off gas supplies to Ukraine -- in 2006 and 2009, as a result of Ukraine failing to pay for Russian gas it has been using leaving households and businesses there and in countries farther west out in the cold.

    Also as part of the new contract, Naftogaz will waive its claims to the 2009 contract between the companies as would Gazprom itself. The waivers might finally put an end to the legal saga that has been dragging for years. During these years, Naftogaz accused Gazprom of failing to supply the agreed volumes of gas while Gazprom accused Naftogaz of not paying for all the gas it received.

    A major catalyst for the agreement was the threat of the United States to impose sanctions on companies involved in the construction of the Nord Stream 2 which is supposed to deliver 55 bcm of Russian gas under the Baltic Sea to Germany and the EU once completed early next year.

    The United States has been trying to derail Nord Stream 2 first by President Trump threatening Germany with sanctions if it goes ahead with building the gas pipeline and now by threatening to impose sanctions on companies involved in its construction. However, these sanctions will not fare better than those that the United States imposed on Russia in 2014. Nord Stream 2 is unstoppable.

    While the sanctions may delay the completion of Nord Stream 2 by a few months, this will not affect Russian natural gas supplies to the EU as a result of the new agreement.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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