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Russia's Gazprom focused on new direct gas sales deal with Ukraine: CEO

Highlights

Transit deal could be linked to bilateral supply accord

Gazprom eyes 11.4 Bcm of stocks in European storage

Putin requests study for gas route via Mongolia

London — Russian gas giant Gazprom's main focus with regard to its relations with Ukraine in the coming months is securing a new gas supply agreement with Kiev, CEO Alexei Miller told President Vladimir Putin on Monday.

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Miller's comments come despite growing concerns that Russian gas transit via Ukraine could be at risk from 2020 after the 10-year agreement between Gazprom and Naftogaz Ukrayiny signed in 2009 expires.

According to a transcript of a conversation between the two posted to the Kremlin website, Miller said a new direct gas sales deal with Kiev was Gazprom's most pressing concern.

"The issue of the transit agreement is extremely important, but still the primary question is whether Ukraine will buy Russian gas under a direct contract," he said.

Ukraine's Naftogaz suspended Russian gas imports in November 2015 and has vowed to never resume purchases from Gazprom.

Miller, though, in his comments to Putin said: "Without a doubt, the main issue is the supply of gas to the Ukrainian market. This is a matter of bilateral negotiations between Russia and Ukraine." He said Ukrainian gas customers would pay 25% less than they do now under a new deal with Gazprom.

The current 10-year agreement between Gazprom and Naftogaz provides for the terms of both direct Russian supplies to Ukraine and the transit of Russian gas via Ukraine.

Miller seemed to suggest that a new deal on transit could be linked to a new bilateral supply agreement, by saying that the answer to the question on Russian gas supplies to Ukraine was also the answer to the question of future gas transmission capacity.

STORAGE STOCKS

There has been growing concern -- especially in central and eastern Europe -- that Russian gas deliveries via Ukraine to Europe could be disrupted from January 1, 2020, after the current deal ends.

Countries in eastern Europe have been stockpiling additional gas to mitigate the impact of potential disruption.

Gazprom itself plans to have injected at least 11.4 Bcm into gas storage facilities within Europe by the end of the year, Miller said, which would be double the level of stocks it held last year.

Gazprom has been building its gas storage capacity in Europe in recent years, with sites across Germany, Austria, the Netherlands and Serbia, and has a stated aim of having access to capacity in Europe that corresponds to 5% of its European gas exports, which last year were some 200 Bcm.

"Gazprom will pump at least 11.4 Bcm of gas into underground storage facilities in Europe," Miller said. "This is more than twice the level of last year." Miller said its European partners have also been injecting gas into storage "at a very high pace" as have its "Ukrainian colleagues." Ukraine has almost 18 Bcm of gas in storage and plans to have at least 20 Bcm before the start of the heating season.

"Without a doubt, one of the factors of high volumes of gas injected into underground storage facilities is the fact that on December 31 of this year, an agreement on transit through the territory of Ukraine ends," Miller said.

MONGOLIA TRANSIT

Separately, Putin also asked Miller to study the feasibility of sending Russian gas via Mongolia to China in the future.

Gazprom is set to start gas exports to China via the Power of Siberia pipeline on December 1, but it also has plans for a western route pipeline and another eastern link to give Russian three points of entry into the growing Chinese market.

Originally, the western route involved construction of a pipeline that would enter Russia via the thin border connection to the northwest of Mongolia, but Putin asked Miller to study the Mongolian option.

"I know the route there is not easy, but preliminary consideration of this issue showed that it is quite realistic, and the Chinese partners are also inclined toward this," Putin said. "I ask you to study this issue and report to me."

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

-- Edited by Jonathan Fox, newsdesk@spglobal.com