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Solution to Russia-Ukraine gas transit standoff may only be reached in Jan: Boltz

London — An agreement on the future transit of Russian gas via Ukraine to Europe may only be reached in mid-January, a senior official at Ukraine's planned gas network operator said Tuesday.

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Walter Boltz, the head of the supervisory board at Mahistralni Gazoprovody Ukrainy (MGU), said at the Flame conference in Amsterdam that there was "huge uncertainty" surrounding gas transit post-2020.

The transit agreement between Gazprom and Naftogaz expires at the end of 2019, with concern growing that the situation could lead to a disruption in supplies of Russian gas to Europe as a result from January 2020.

"At the moment, it doesn't look very promising," Boltz said. "There will be a solution maybe only in mid-January," he said.

MGU -- which has been created under Kiev's ambition to unbundle gas transit from the state company Naftogaz Ukrayiny -- is not yet responsible for operating the gas grid.

At present, MGU is not fully established, meaning Naftogaz is effectively still responsible for gas transit as per the 2009 gas supply and transit deal with Russian gas giant Gazprom.

The situation is complicated by the fact that Gazprom has said it would only negotiate a new transit deal once a functional Ukrainian TSO was operational.

The European Commission wants Naftogaz to complete the unbundling of its grid operating activities into the new operator by January 1, 2020, in time for a new contract with Gazprom on transit to the EU.

However, Janez Kopac, director at the Energy Community Secretariat, said at the Flame conference that Naftogaz was being slow to finalize the unbundling process.

He also said the government in Ukraine "talks a lot about unbundling but is doing nothing."

Ukraine committed in 2016 to separating its gas grid operations into a stand-alone company in an attempt to bring its transportation operations into line with European standards.

TRILATERAL TALKS

In the meantime, trilateral talks between the EC, Russia and Ukraine are expected to take place later this month in a bid to find an agreement on Russian gas transit via Ukraine post-2020.

Talks on new transit arrangements have been held sporadically over the past year, with the latest round having taken place in January.

Boltz said the Ukrainian government would play a large part in negotiating a new deal.

"It is a government affair," he said. Asked whether MGU would be part of the talks on a future transit agreement, he said it was "not that relevant" who the negotiating partner was given that the talks are ultimately led by the Ukrainian government in any case.

Kopac said there was "still time" to reach a deal before end-2019, but that there needed to be the "political will" on the Ukrainian side.

Gazprom has also said it would only agree to new terms for post-2019 transit after the Svea court of appeal in Sweden has ruled on its appeal against a net $2.56 billion arbitration award made last year in Naftogaz's favor over the gas accord.

Ukraine used to transit around 110 Bcm of Russian gas to the EU, but this fell to around 62 Bcm after Russia brought its 55 Bcm/year Nord Stream gas pipeline direct to Germany across the Baltic Sea online in 2011.

Transit volumes have since recovered and totaled 87 Bcm last year given high demand in Europe for Russian gas.

-- Stuart Elliott, Stuart.Elliott@spglobal.com

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