Ukraine Warns of Gas Crisis as Negotiations With Russia Drag On

Vanessa Dezem
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Gazprom Dismisses Fears of EU Gas Apocalypse This Winter

(Bloomberg) -- Russia’s Gazprom PJSC is confident it will send sufficient volumes of natural gas to Europe this winter even as it faces tough transit talks with Ukraine and negotiations with Denmark over the controversial Nord Stream 2 pipeline.The Moscow-based company, which last year supplied almost 37% of Europe’s gas, is now actively refilling storage facilities in the region to ensure stability of winter deliveries, Gazprom Deputy Chief Executive Officer Elena Burmistrova said in St. Petersburg. Ukraine last week warned of a crisis as negotiations drag on.Gazprom expects two pipelines that bypass Ukraine, Nord Stream 2 under the Baltic Sea and TurkStream across the Black Sea, to start on schedule by the end of the year. The company is ready for talks with Ukraine on a gas supply and transit contract once the nation holds parliamentary elections and forms a new government later this year, Burmistrova said.With the “two streams and a possibility of finding an agreement with Ukraine on extending the existing transit contract” Gazprom is sure it can remain a reliable gas supplier to Europe, Burmistrova told reporters at a briefing. “We wouldn’t want to believe in an apocalyptic scenario.”Long-standing spats between Gazprom and Ukraine have twice resulted in major gas supply cutoffs to Europe over the past 14 years amid cold winter weather. The company’s transit contract with Ukraine’s pipeline operator NJSC Naftogaz expires in December 2019 and talks on its renewal have stalled, leading to fears of a repeat.Meanwhile, Denmark is showing opposition to Nord Stream 2 and the U.S. has threatened to impose sanctions on the Baltic link. That increases the risk of a delay.However, Europe is better prepared for any cutoffs of Russian gas transit via Ukraine. Prices are near a three-year low as liquefied natural gas deliveries have soared and inventories look healthy after a mild winter.Gazprom is willing to offset the Ukraine transit risks by adopting a flexible approach to talks with Naftogaz, Burmistrova said.“Either a mid-term or short-term contract will suit us, we are ready to discuss any options once we understand who we should discuss them with,” she said.Ukraine is less optimistic about the outcome of the negotiations. Russia appears to be planning a failure to renegotiate its contract with Naftogaz, Yuri Vitrenko, the company’s chief commercial officer, said last week. With Ukraine’s parliamentary elections scheduled for July 21, the next round of gas talks involving the European Commission have been pushed back into the second half of the year. Last week, Russia’s Energy Minister Alexander Novak said that the date of the talks may be determined only in September.While gas transit talks with Russia are complicated, Naftogaz has a plan B, Vitrenko said on Tuesday in a Facebook post. The Ukrainian company is ready to sign a deal on gas swaps with Gazprom beyond 2019, according to Vitrenko.Under the swap deal, Gazprom could transfer gas to Naftogaz at the Russian-Ukrainian border and Naftogaz would then send the same volumes to its borders with EU countries, Vitrenko said.Meanwhile, Gazprom is boosting injections into European underground gas storage sites to mitigate winter supply risks. The company has adopted a strategy of putting at least 5% of volumes under the European supply contracts in regional storage facilities to ensure it meets client demand in winter, Burmistrova said.Gazprom sees no need to revise down its target for deliveries in Europe and Turkey, estimating shipments at 194 billion to 204 billion cubic meters this year. For comparison, that is more than double total U.S. gas exports last year.“Our supplies of around 200 billion cubic meters per year is a new reality for the European gas market, and it’s all that matters,” Burmistrova said.(Updates with a comment from Naftogaz CCO from 11th paragraph.)\--With assistance from Daryna Krasnolutska.To contact the reporters on this story: Olga Tanas in St. Petersburg at otanas@bloomberg.net;Dina Khrennikova in Moscow at dkhrennikova@bloomberg.netTo contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Helen Robertson, Rob VerdonckFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Ukraine is warning European nations to prepare for a gas crisis amid skepticism it will agree on a new transit contract with Russia before the current deal expires.

It’s “highly probable” that a new accord won’t be concluded by Jan. 1, when the current agreement ends, according to Ukraine’s deputy foreign minister Olena Zerkal. That echoes skepticism by the nation’s gas company this week for a deal on shipping fuel from Russia, Europe’s biggest supplier, to regional consumers through the linchpin transit country.

“While Russia holds off the negotiations on future contract, the gloomy scenario of a gas crisis shall be considered seriously,” Zerkal said by telephone from The Hague. “That is why every European nation, including Ukraine, is increasing gas stock in storage sites.”

Ukraine is offering access to its massive storage facilities and relying on financing from international financial institutions to boost their capacity so as to insure against the risk of a cut in Russian supplies. Russia hopes for a new transit deal and will discuss a date for trilateral talks with the European Union and Ukraine in September, Energy Minister Alexander Novak said this week.

More than a third of Europe’s gas comes from Russia, and most of that goes through Ukraine’s Soviet-era pipelines. Ukraine has proposed that the European Union store as much as 4 billion cubic meters of gas in its underground storage facilities to guarantee security of supply for eastern European countries heavily reliant on Russian gas, pipeline operator Ukrtransgaz said this week.

While Europe’s gas markets are currently well supplied and prices are near their lowest in three years, traders are closely monitoring the dispute, which echoes a pricing conflict between the ex-Soviet nations that caused flows into Europe to be disrupted for almost two weeks in freezing weather in January 2009.

“We will see some bumps on the road but it will get to a conclusion,” said Guy Smith, head of gas trading at Vattenfall AB. “In the end, people will reach a sensible conclusion that will provide value for both sides.”

The progress made by Ukraine and Russia since last July would allow the parties to conclude a new contract quickly, Zerkal said. But Russian proposals to prolong old contracts “would mean to turn back in time to 2009” while it’s insistence to wait until the political leadership in Ukraine changes before resuming negotiations is pointless as the government position won’t change, she said.

Transit via Ukraine will remain vital for Europe next winter because the Nord Stream 2 pipeline directly from Russia to Germany under the Baltic Sea is likely to be delayed, hindered by permitting processes in Denmark and threatened by possible U.S. sanctions.

Trump’s Jab at Russia Gas Link Shows Fight for Market Share

“We have a well-elaborated framework for further successful negotiations,” Zerkal said. “New contracts should reflect all lessons learnt by Ukraine and other European nations on what it means to transport Russian gas.”

--With assistance from Mathew Carr and Mikael Holter.

To contact the reporter on this story: Vanessa Dezem in Frankfurt at vdezem@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Rob Verdonck

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.