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Ukraine's Naftogaz warns against 'compromise' deal on Nord Stream 2

Highlights

Germany, US in talks on mitigating Nord Stream 2 impact

CEO Vitrenko calls for 'restraint' in proposal assessments

Naftogaz eyes more customers for Ukraine network

The head of Ukraine's state-owned Naftogaz Ukrayiny has warned against any kind of "compromise" deal regarding the operation of the Nord Stream 2 gas pipeline from Russia to Germany.

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In an interview June 25 with Ukrainian television, Naftogaz CEO Yuriy Vitrenko also said he wanted gas shippers other than Gazprom to be allowed access to Ukraine's gas network for supply to Europe in order to safeguard the system.

Germany and the US are already in talks on how to mitigate the impact of Nord Stream 2 on Ukraine once the link becomes operational, with possible proposals expected as soon as next month.

A number of ideas on reducing the impact of Nord Stream 2 have been tabled in recent months.

These include Germany reserving the right to regulate the pipeline's use depending on Russian political behavior, for the current five-year transit deal with Kyiv to be extended, or for Ukraine to be compensated for lost transit revenues.

Vitrenko said a proposal to simply extend the current transit contract with Gazprom as part of a deal allowing the startup of Nord Stream 2 was "extremely dangerous" for Ukraine.

"There is speculation -- let's just extend the current contract," he said.

But, he said, there was always the risk that Gazprom would go to arbitration to argue against the "ship-or-pay" terms of the contract if it no longer needs Ukrainian transit.

He called for "restraint" and "wisdom" in assessing any proposals for a "compromise" on Nord Stream 2.

State-controlled Gazprom -- the sole exporter of pipeline gas from Russia -- has said it could divert much of the gas that currently transits Ukraine into Nord Stream 2.

Germany has in the past said it could prevent flows of gas via Nord Stream 2 if Moscow increases political pressure on Ukraine.

However, it would severely impact on future European gas supply if Nord Stream 2 flows were to be restricted amid zero transit via Ukraine.

Indeed, the head of Ukraine's gas grid operator GTSOU said in March that such an eventuality would never happen.

"I can hardly believe that Germany or the EU would decide to create an energy crisis in Europe by stopping Nord Stream 2 if Gazprom stopped Ukrainian transit," Sergiy Makogon said. "Ukraine would not accept such a proposal."

Transit diversification

Vitrenko on June 25 also said that diversification of customers for its gas transit services was of "national importance" for Ukraine.

"The national task is to make sure that not only Gazprom is a user of Ukrainian gas transit services," he said.

"This will allow us to maintain both transit revenues starting in 2025 -- after the expiry of the current transit contract with Gazprom -- and physical volumes of transportation," he said.

Gazprom has agreed to transit 40 Bcm/year of Russian gas via Ukraine from 2021 until 2024 -- and must pay for that transit whether it uses it or not -- but it is still unclear what will happen after 2024.

Vitrenko again said gas from Central Asian countries -- such as Kazakhstan and Turkmenistan -- should be allowed to be sent via Russia and Ukraine to Europe.

This would enable buyers of Central Asian gas to buy it at the border between Russia and Ukraine, and then book capacity in the Ukrainian network for the gas to reach Europe.

GTSOU has also called for Russia to allow traders to buy Russian gas at the Russia-Ukraine border and then to book Ukrainian system capacity.

Vitrenko said earlier this month that Naftogaz had started preparing documentation to file a lawsuit against Gazprom in an attempt to force the Russian gas giant to change its selling behavior with regard to Central Asian gas sales and the transfer of point of sale.

Naftogaz also wants to force Russia to allow other Russian producers to be able to export pipeline gas via Ukraine to Europe.

Gazprom currently has a monopoly on the export of pipeline gas out of Russia.

Ukraine's transit of Russian gas to Europe in 2020 dropped 38% year on year to 55.8 Bcm.