London — That US sanctions on Nord Stream 2 were signed into law by US President Donald Trump on the same day as Russia and Ukraine agreed a new five-year gas transit accord was quite the coincidence.
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But in the end, it seemed inevitable that the two issues were always going to be interlinked.
The US sanctions signed into law on Friday will undoubtedly lead to delays in finishing the Nord Stream 2 pipeline from Russia to Germany, and mean that Moscow really had no choice but to compromise with Ukraine over transit.
Russia's ultimate aim had always been to complete both the 55 Bcm/year Nord Stream line and the 31.5 Bcm/year TurkStream pipeline by the end of 2019, in time to be able to -- in theory -- reduce the use of Ukraine as a transit country to zero from 2020.
The maths were on Russia's side. The combined capacity of the two lines is 86.5 Bcm -- almost exactly the volume transited via Ukraine in 2018 (86.8 Bcm).
But any delay to the construction of the two projects would inevitably bring Ukraine back into play.
And when the US rushed through specific new sanctions against any company laying pipe for Nord Stream 2 and TurkStream -- followed by pipelayer Allseas suspending its operations on Saturday -- it became clear that there was no way Nord Stream 2 would be completed anywhere near on time.
S&P Global Platts Analytics believes there is a workaround for completing Nord Stream 2 using Russian vessels, but the start of Nord Stream 2 will likely be delayed by a further six months to Q4 2020.
Many industry watchers were of the opinion that Moscow would wait until the last minute to agree a new deal with Ukraine -- a cliff-edge December 31 agreement was considered a likely scenario.
But it looks like Russia ran out of options if it wanted to maintain stable supplies to its European customers in 2020 and the US sanctions were the last straw.
The transit deal was lauded Monday by European Commission vice president Maros Sefcovic as "an opportunity to hit a reset button in relations between Russia and Ukraine."
That remains to be seen.
But both sides have had to compromise to reach the new transit agreement, which is set to be signed off by Gazprom and Naftogaz by December 29
.For Russia's Gazprom, agreeing to pay the near $3 billion arbitration bill to Ukraine's Naftogaz will be a bitter pill to swallow.
The net $2.56 billion award -- now closer to $3 billion with interest -- made by the Stockholm court in February 2018 had been dismissed and challenged by Gazprom as unfair.
Gazprom has always insisted it would never pay up, saying the ruling was politically skewed.
But it is important to remember that under the new protocol agreed on Friday, Gazprom will be let off a separate $6.7 billion fine imposed on the company by Ukraine in 2016 for the Russian company's alleged abuse of its monopoly position on the Ukrainian market.
And in early November, Naftogaz made a new $12 billion arbitration claim seeking compensation from Gazprom for its refusal to accept market-based gas transit tariffs in 2018 and 2019.
Simply put, the legal dispute was intensifying and Gazprom had already been on the losing end.
Stumping up $3 billion, but having all other legal claims cancelled -- including attempts by Naftogaz to seize and sell Gazprom assets globally -- is not a bad outcome.
Ukraine had to compromise too, not only in dropping all the other claims against Gazprom.
Kyiv -- and Brussels -- had been angling for a 10-year transit deal, but in the end they had to settle for a five-year accord.
Next year transit volumes will only be 65 Bcm, and volumes will fall to just 40 Bcm/year from 2021-2024.
That will suit Gazprom to some extent as it ramps up flows through Nord Stream 2 and TurkStream. At least the pressure is off for Gazprom to complete Nord Stream 2 and the onshore extension of TurkStream into southeast Europe quickly.
The new test, then, will come in December 2024 when this new accord will expire.
So we'll likely be back in exactly the same place then, with Russia unlikely to want to agree to volumes of that level again and Ukraine seeking a continued transit role.
And given that both sides ignored the previous agreement from 2009 for much of the term of the accord, any change in relations between Moscow and Kyiv could see the start of yet another gas spat.
--Stuart Elliott, email@example.com
--Edited by Alisdair Bowles, firstname.lastname@example.org