Brussels is hosting the kick-off of a fresh series of trilateral gas talks between Russia, Ukraine and the EU this Friday. The goal is to agree, by June, on a successor to the current “winter package” on Ukrainian gas purchases from Russia, which would settle gas – and cash – flows between the two countries until autumn 2016, when an international court in Stockholm is expected to rule on their dispute.
The spring summit of EU leaders has barely ended and winter is back on the table in the form of a trilateral meeting between Russia, Ukraine and the EU to launch talks on what happens after 31 March, when the €4.6 billion “winter package” that temporarily solved the gas dispute between Kiev and Moscow ends.
That deal, finalised by former EU Energy Commissioner Guenther Oettinger on his last day in office on 31 October, saw Ukraine agree to pay debts to Gazprom of US$3.1 billion and indicate it would spend US$1.5 billion on fresh supplies. A “take-or-pay” clause was suspended.
What happens now? “Anything is possible,” EU officials said on Thursday. In theory, the take-or-pay clause resumes from 1 April, meaning that Ukrainian debt could quickly explode afresh, since this clause commits the country to pay for around 50 billion cubic metres (bcm) a year of Russian gas, regardless of whether it needs it or not.
As it is, Ukraine does need to start importing gas, from April, to start replenishing its underground storage tanks for next winter. And it needs to pay in advance for this, whether the gas comes from EU member states via reverse flows (up to 1.8bcm/month) or from Russia (4-6bcm/month will be needed, EU officials estimate). The problem is that they also estimate that Ukraine will be about US$2.6 billion short of the funds it needs for all this.
The formula to calculate the exact gas price is far from settled. The Russians insisted on keeping it intact for the winter period – introducing a US$100 per thousand cubic metres (tcm) discount instead – but no one knows how this will play out in round II.
The point of this first meeting on Friday, 20 March, is to set out a plan for talks between now and June, when EU officials hope to seal a deal. Their goal is to have it last until an international arbitration court in Stockholm rules on the Ukraine-Russia dispute. That is expected to be in October 2016, with hearings starting in February 2016.
Between now and then, expect a fresh bombshell: from July, a new gas law will enter into force in Ukraine that makes it compliant with the EU’s 3rd energy market liberalisation package, as it’s required to do as a member of the Energy Community. This will render Gazprom’s contracts via Ukraine with EU transmission system operators (TSOs) such as Slovakia’s Eustream illegal. The 3rd package forbids a supplier from taking on the functions of a TSO – yet this is exactly what Gazprom does in Ukraine.
These contracts will all have to be renegotiated, EU officials said. This changes things, because it is also these contracts that forbid virtual reverse flows (Ukraine buying gas in transit). Ukraine is currently in talks with Hungary about setting up a legal framework for reverse flow. EU officials suggest this could be a precedent for renegotiating other transit contracts, including with Eustream in Slovakia.
Two other points worth nothing: one, the results of an EU anti-competitiveness investigation into Gazprom are also due soon and two, all of Gazprom’s purchase and transit contracts with/through Ukraine are due to end in 2019 – when the era of Turkstream is supposed to start.
See also the interview Energy Post published recently with Andriy Kobolev, CEO of Naftogaz.