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Ukraine rules out taking part in new Russian gas transit talks: minister

Highlights

Five-year Russia-Ukraine transit deal to expire at end-2024

Russian flows via Ukraine totaled 8.23 Bcm in Jan-July

Gazprom contracted to transit 40 Bcm via Ukraine this year

  • Author
  • Stuart Elliott
  • Editor
  • Jonathan Fox
  • Commodity
  • Natural Gas

Ukrainian energy minister German Galushchenko has ruled out the prospect of Kyiv taking part in any talks with Russia regarding arrangements for gas transit after the existing five-year agreement expires at the end of 2024.

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Despite the ongoing war, Russia's Gazprom has continued to send gas to Europe via Ukraine under the current contract, with volumes delivered at the Sudzha interconnection point on the Russia-Ukraine border.

However, Galushchenko said in an interview with Voice Of America Aug. 16 that Ukraine would "definitely not be a party to negotiations with the Russians" on any extension of the five-year deal. "This is absolutely obvious."

Galushchenko added that 2024 would be a key year for assessing whether Europe could manage without any Russian gas. "I see all the prerequisites for it," he said.

Ukraine's Naftogaz, grid operator GTSOU and Gazprom signed in December 2019 a five-year gas transit agreement under ship-or-pay terms, meaning Gazprom is obliged to pay for transit whether it uses it or not.

Gazprom has contracted to transit 110 million cu m/d of Russian gas to Europe via Ukraine in 2023 and 2024 -- or a total of 40 Bcm/year -- before the contract expires at the end of next year.

But since May 2022 Gazprom has been flowing less gas than agreed in the contract and paying less than the agreement provides.

Russian gas deliveries to Europe via Ukraine totaled just 8.23 Bcm in the first seven months of 2023, a decline of 41% year on year and a fall of 68% versus 2021.

In July, Gazprom pumped just 35% of the contracted volume, according to Ukraine's gas industry group AGPU.

Russian gas flows via Ukraine are currently entering at Sudzha at a rate of around 42 million cu m/d -- the equivalent of around 15.3 Bcm on an annual basis.

Sokhranivka force majeure

In May 2022, Ukraine declared force majeure on its ability to transit Russian gas entering at an alternative entry point at Sokhranivka, saying it no longer had operational control of infrastructure in parts of eastern Ukraine.

In response Gazprom said it would only pay for services rendered despite the ship-or-pay provision in the transit contract.

Naftogaz offered Gazprom the option of transferring transit to Sudzha -- the only operational entry for Russian gas into Ukraine at present -- but it was not taken up.

Up to 33 million cu m/d of Russian gas could flow into Ukraine at Sokhranivka before the force majeure.

Galushchenko said Russia's actions remained unpredictable. "They can terminate this contract any day. It is absolutely obvious that this is not related to legal formalities," he said.

Russian pipeline gas now accounts for around only 8% of EU imports, compared with around 45% before the invasion of Ukraine in February 2022.

The much lower Russian gas exports to Europe helped drive gas prices to record highs in 2022.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26, 2022.

Prices have come down sharply since then thanks to healthy storage levels and demand curtailments but remain relatively high, with Platts assessing the TTF month-ahead price on Aug. 16 at Eur37.98/MWh.