Russian gas flows through Ukraine threatened by transit fees – POLITICO

A war of words between Ukrainian and Russian gas companies is threatening gas transit to the EU.

Ukraine’s Naftogaz and Russia’s Gazprom are at odds over payment for gas shipments through pipelines through Ukraine – a trade that has continued despite the war between the two countries.

But that deal is starting to unravel.

Under a 2019 transit agreement, Moscow is required to pay for 40 billion cubic meters of gas to flow through Ukraine’s pipelines this year, whether it actually sends the gas or not. In total, Ukraine expects to earn $7 billion from the deal that runs until 2024.

Gazprom currently sends 42.4 million cubic meters of natural gas across Ukraine per day, about 17% of the line’s capacity. But this month, Naftogaz filed for arbitration, saying the final bill to get that gas to Europe was « not paid by Gazprom, neither on time nor in full ».

Late Tuesday, Russia’s export monopoly warned: « Services that have not been provided by the Ukrainian side should not and will not be paid. »

He also said taking the dispute to arbitration would be seen as « a hostile move » that could lead to Moscow sanctioning state-backed Naftogaz. « In practice, this will mean a ban preventing Gazprom from fulfilling its obligations…including financial [payments]under the multi-year transit agreement, Gazprom said.

Naftogaz hit back on Wednesday, saying Gazprom « distorts information and manipulates facts ».

The risk is that the already reduced flows to the EU through Ukraine will be reduced to nothing. Russia, which traditionally supplied around 40% of EU gas imports, saw that figure drop to just 9% after halting or limiting sales to more than a dozen countries.

Earlier this month, Gazprom halted shipments on the Russia-Germany Nord Stream undersea gas pipeline. This and the parallel Nord Stream 2 pipelines were hit by explosions on Monday.

If deliveries through Ukraine cease, it would leave the only Russian gas entering the EU via a branch of the TurkStream gas pipeline landing in Bulgaria and then heading to Hungary, Greece and the Balkans.

The issue of transit fees began in early May, when Ukrainian gas network operator GTSOU warned that Russian gas destined for European customers was being illegally diverted as it passed through the Russian-occupied Lugansk territory in the east. from Ukraine.

GTSOU has stopped offering transit through this route and Naftogaz has proposed that the Russian supplier instead transfer these volumes to a second transit line that does not pass through the occupied territory. Gazprom uses this route to a lesser extent, which means that overall volumes passing through Ukraine have fallen.

Each side now accuses the other of breaching the terms of the original agreement, which details specific transit routes and volumes for each. They are also arguing over where any arbitration hearing should take place, with Gazprom complaining that venues in Sweden and Switzerland are now out of the question as both « have entered the category of countries hostile to the Russian Federation ».

This will not prevent Naftogaz from pursuing arbitration, said Company CEO Yuriy Vitrenko: « The arbitration will make an award regardless of Gazprom’s involvement. »