Nord Stream 2
Allseas’ Solitaire vessel on Nov. 24 lays pipes for the Nord Stream 2 pipeline. Photo: Gazprom
Talks between Ukraine's state-owned Naftogaz and Russia's state-owned Gazprom over gas transit and supplies between the two countries are expected to commence in the near future, Andrei Gerus, a representative of the Ukrainian President, has said.
"Some new agreement may be signed. I think, we can expect negotiations on gas transit between Naftogaz and Gazprom, between the Ukrainian and Russian sides, in the near future. But so far, as of today, the transit contract ends on December 31," Gerus said.
Trilateral talks over gas are already underway between the governments of Russia, Ukraine and the EU, with another round due to begin in September.
There had been hope in Moscow that construction of the Nord Stream 2 pipeline would mean that further talks with Kyiv over transit rights would no longer be necessary, However, repeated delays to the controversial project have meant that a return to the negotiating table is far more likely.
Revenues from gas transit contribute around €2.7-billion to Ukrainian coffers annually.
The newly elected President of Ukraine, Volodymyr Zelenskiy, who has consolidated his power following the country's parliamentary elections, had pledged to attract more foreign investment to the country. Few, however, believed that he meant from Russia.
Nonetheless, the looming expiry of the lucrative transit contract, and the repeated delays of Nord Stream 2, have given Mr Zelenskiy an opportunity to prove his worth at the negotiating table.
Some observers are, however, sceptical that the inexperienced new President, a former comedian, will be able to reach a deal with Vladimir Putin's team.
John Roberts of the Methinks consultancy said: “While Zelenskiy will try for a deal, he is very unlikely to get it."
With the current ten-year contract due to expire at the end of the year, it is unlikely that Moscow will sign up to another long-term arrangement with Ukraine.
In June, Gazprom chief Alexei Miller said that "the ship has sailed" and Ukraine had missed its chance to sign a new gas contract. He added that there may be an opportunity to extend the existing contract if it was "economically viable for the Russian side."
He also said that Ukraine should be more concerned with its own gas supplies and not the revenue it makes from the transit of Russian gas.
Simon Pirani of the Oxford Institute for Energy Studies noted that sort form of peace agreement in the rebel-held provinces in eastern Ukraine could make reaching an agreement on gas transit easier for Mr Zelenskiy.
“There will be the possibility of a more meaningful negotiation on gas transit at the political level,” Pirani said. He added that he was not optimistic that a deal would be reached.
“The gas market is telling us it does not think a settlement is likely,” he added.
At its high point, around 110 bcm of gas transited from Russia to the EU via Ukraine each year. This amount fell to about 62 bcm in 2014 as exports through the first Nord Stream pipeline increased.
2018 saw transit volumes through Ukraine increase to 87 bcm as demand in Europe surged.
Gazprom hopes to entirely bypass Ukraine's Soviet-era pipelines completely with the construction of the 55-billion m³ (bcm) Nord Stream 2 and the 31.5 bcm TurkStream pipeline.
The TurkStream project, which is now nearing completion, runs from Anapa in Russia's Krasnodar region, across the Black Sea and ends in Kıyıköy on the Turkish Thrace coast where it joins other pipelines to supply Italy and the Balkans.
The more controversial Nord Stream 2, however, which runs from Vyborg in Russia to Greifswald in Germany, has been beset with delays and political wrangling amongst EU member states.
Kiev and Brussels have proposed a new 10-year transit deal for 60 bcm per year.
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