It will be cold: Ukraine asks the EU to organize gas talks with Russia

The Ukrainian authorities’ hopes for warm winter have not come true. Over the last month and a half, they have already taken more than one billion cubic meters of gas from their storage facilities. According to Ukrtransgaz, now Ukraine has just 13.7bn c m in stock. In the meantime, the country continues importing gas from the EU. Each day it is getting 52mn c m and in Nov alone it got almost 1.5bn c m.

But winter has not started yet. Experts predict that in early Dec temperature will fall to -6-10 C. So, even though Business Development Director of Naftogaz Yuri Vitrenko keeps assuring his Facebook friends that Gazprom has failed to prevent Ukraine from importing gas from Europe, they in Kiev are well aware that without Russian gas they will not survive this winter.

At least, EU Vice President for Energy Union Maros Sefcovic has already conveyed to Russian Energy Minister Alexander Novak Ukraine’s request for new gas talks. Ukraine stopped buying gas from Russia in Nov 2015. As a result, it stored up just 14.7bn c m this year. CEO of Naftogaz Andriy Kobolev was sure that this is enough for this winter.

But now the Ukrainian side wants to negotiate. According to TASS, in Moscow, Sevcovic and Novak had a two-hour meeting concerning the talks. Novak agreed to meet in Brussels in Dec. The topic will be some additional 1.5bn-4bn c m Ukraine may need for this winter. Well aware that Gazprom’s key precondition is prepayment, Sefcovic assured Novak that they in Kiev do have money for the gas – in the last resort, they can spend the $500 loan to be given by the World Bank.

One of the factors that have urged the Ukrainians to look back towards Gazprom is the price. As EADaily reported earlier, in Q3 2016 alone, Naftogaz spent on European gas $95mn more than it would have spent if it had bought gas from Russia. It may prove unable to pay so much this winter. In this light, Novak told Sefcovic that Ukraine would pay at least $15-30 less for Gazprom’s gas.

“The EU is interested in the talks as they are a guarantee of stable transit this winter. As far as Ukraine is concerned, it is hard to predict what they in Kiev will require. Much here will depend on which of the ruling clans will prevail. As you remember, before winter, the Ukrainian Cabinet required storing up 17bn c m but Naftogaz stored up just 14.7bn c m,” says Igor Yushkov, senior analyst at the National Energy Security Fund.

As you may know, the previous gas talks resulted in “winter packages,” which suspended Gazprom’s take-or-pay rule. This summer, Naftogaz asked to remove this rule from the contract but Gazprom refused to do it. Naftogaz claimed that continued gas imports from Russia would make it weaker in its arbitration suit against Gazprom.

This winter, Gazprom is not going to suspend the take-or-pay rule. And the key reason is that very suit.

According to experts, they in Kiev have tried to make Gazprom more compliant by imposing a multi-billion fine on it for abusing its transit monopoly in Ukraine. And even though this monopoly is stipulated by Russian laws, Ukrainian courts rejected Gazprom’s appeal and the Russian company will have to pay a total of $6.8bn - the fine plus a penalty for not paying it in time.

“I think that even if the sides come to terms during the talks, the fine will not be annulled. The Ukrainians will not insist on its immediately payment but will keep it as a trump against Gazprom. Today, Gazprom has only transit gas in Ukraine but they in Kiev will dare to use it only if they stop receiving loans from the West,” Yushkov says.