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Ukraine's Naftogaz wants Russia to transit gas under EU rules

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Brussels — Ukraine's Naftogaz wants Russia's Gazprom to comply with EU-style entry/exit gas capacity booking rules from 2020, as well as committing to a minimum throughput volume, its executive director Yuriy Vitrenko said in an interview.

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The two companies are locked in a protracted legal dispute over the current transit contract, which expires at the end of this year, creating uncertainty about how and how much Russian gas will flow to Europe via Ukraine from 2020.

The companies have yet to agree any terms for post-2019, but Naftogaz wants Gazprom to sign a standard EU-style interconnection agreement, as well as a formal commitment indicating how much capacity it wants to book and where, Vitrenko said.

Gazprom sent 87 Bcm through Ukraine to Europe in 2018, but this could drop to less than 20 Bcm/year from 2020 if its 55 Bcm/year Nord Stream 2 link to Germany and 31.5 Bcm/year Turk Stream link to Turkey come online before then as planned.

EC PROPOSES 60 BCM/YEAR MINIMUM

The European Commission wants to support Ukraine as a Russian gas transit partner for Europe and has helped broker meetings between the two parties to discuss post-2019 transit.

Vitrenko, who has been closely involved in these talks, said EC vice-president for energy union Maros Sefcovic has proposed 60 Bcm/year capacity for 10 years for Gazprom's minimum booking commitment, with Ukraine ensuring another 30 Bcm/year capacity is available to cover any short-term extra needs.

Under the EU-style rules, "Gazprom wouldn't be booking transit gas any more -- it would be booking entry and exit capacity at different points as needed," Vitrenko said.

"We have multiple entry and exit points, and we need to know which ones to maintain," he added.

Naftogaz also needs Gazprom to agree a minimum volume so that the Ukrainian regulator knows how much capacity is expected to be booked and can regulate the tariffs accordingly, Vitrenko said.

Ukraine is adopting EU gas market rules, including detailed network codes regulating grid access and capacity booking.

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"By the end of this year I expect the Ukrainian gas market to be on the same legal basis as an EU country," Vitrenko said.

The interconnection agreement, for example, would be based on a standard EU template developed by the EU's formal gas transmission system operators' body Entsog under the EU's binding gas interoperability and data exchange network code.

This agreement covers technical details between grid operators including data exchange and gas quality.

"In principle the interconnection agreement could take just a couple of days to agree and sign -- we only have to adapt a standard template," Vitrenko said.

Ukrainian entry and exit grid capacity could also be sold on the European joint gas capacity booking platform Prisma, he said.

"It's not a problem to use the Prisma platform. We have to define the capacities first though, and that depends on the TSOs on either side of the interconnection points, as we have to offer bundled capacity," he said.

EU RULES FOR NORD STREAM 2

The EU last month also agreed in principle to apply its market rules to offshore gas links with non-EU countries, in a bid to help Ukraine compete for Russia's transit business once Nord Stream 2 comes online.

The move makes it likely that Nord Stream 2 will face tariff regulation by Germany for its EU section -- the last 22 km to the German coast.

This would force the project company to reveal at least partial data on its costs and tariffs.

Making this data more visible would help Naftogaz offer competitive tariffs for its route, Vitrenko said.

"We need regulatory approval to offer tariffs below our total costs based on capital and operating expenditure," he said.

The Ukrainian regulator is more likely to agree to that if Naftogaz can show it needs to do so to be competitive with rival routes, he said.

The EC plans the next high-level meeting to discuss post-2019 Russian gas transit to Europe via Ukraine in May.

Gazprom has said it will not agree new terms until the current transit dispute is resolved. An arbitration appeal ruling on that is expected in mid-2020.

-- Siobhan Hall, siobhan.hall@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com