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EC, Russia, Ukraine gas talks reveal expectations of future transit framework

London — Talks between the European Commission, Russia and Ukraine at "expert" levels in Brussels this week resulted in the parties revealing their expectations for the arrangements for Russian gas transit via Ukraine post-2019, an EC representative said Friday.

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A new series of trilateral talks aimed at securing terms for transit of Russian gas via Ukraine after their 10-year agreement expires at the end of 2019 were held at ministerial level in July, with all parties agreeing to further negotiations throughout 2018.

"This week's meeting allowed for better understanding of initial positions and expectations of the parties on key parameters of the possible future transit framework, namely the legal environment, the future transmission system operator in Ukraine and approach to the tariff methodology," the representative told S&P Global Platts.

Russia's willingness to discuss post-2019 transit terms has been seen as a positive signal for the EU's gas security, as the European Commission had been worried that the EU could face supply disruptions if transit through Ukraine became blocked by either side failing to agree on new terms.

The latest meeting held in Brussels on Wednesday and Thursday was the first since the July ministerial gathering.

Another round of talks at "expert" levels is expected toward the end of September, the representative said.

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Russia has said it is ready to agree on a post-2019 gas transit contract with Ukraine and to consider using that route to meet expected higher EU gas demand.

However, Moscow also hopes to have its 55 Bcm/year Nord Stream 2 pipeline and its 31.5 Bcm/year TurkStream link ready to flow gas to Europe by the end of 2019, leaving only limited volumes for transit via Ukraine.

Russian gas company Gazprom estimated its sales to Europe and Turkey may reach 205 Bcm or more in 2018.

Gazprom sent 94 Bcm through Ukraine to Europe last year, the highest amount since it brought its 55 Bcm/year Nord Stream gas pipeline to Germany online in 2011.

Gazprom has previously said volumes through Ukraine could fall to 10-15 Bcm/year after 2019, assuming Nord Stream 2 and TurkStream come online before then.

There is, however, a risk that first gas through Nord Stream 2 may be delayed till after 2019, which would force Gazprom to continue sending large volumes via Ukraine until Nord Stream 2 was available.

The EC has previously helped Russia and Ukraine negotiate gas supply deals with each other to ensure their ongoing legal disputes did not disrupt transit to the EU, but has not been involved before in agreeing on transit terms.

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

-- Edited by Annie Siebert, newsdesk@spglobal.com