Last week bilateral negotiations at the expert level between Russian gas monopoly Gazprom and Gas Transmission System Operator of Ukraine with regard to the terms of transiting Russian gas to Europe from 2020 onward continued in Vienna. “The parties discussed the results of their interaction in the past week and agreed to continue their work together,” Gazprom said.
Ukraine continues to integrate the EU’s Third Energy Package into its national legislation, which involves the creation of an independent certified gas transmission operator.
Naftogaz claimed that Ukraine has made “remarkable progress” in implementing EU energy regulations and the unbundling of Naftogaz. The new gas Transmission System Operator (TSO) of Ukraine will be fully functional by 1 January, ensuring secure gas supply to the EU is a priority for both Ukraine and Russia, Naftogaz said.
Given also the ceasefire agreement between Russia and Ukraine, an agreement between Kiev and Moscow for the transit of Russian gas across Ukraine to Europe may be reached before the end of the year.
“I think the Normandy meeting has provided a positive stimulus from both presidents for the parties to reach an agreement before the end of 2019,” Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on 11 December. “I would think the bilateral negotiations will intensify in coming days and weeks with more effort being made in finding a quid pro quo,” she added.
There has been progress in Ukrainian TSO unbundling and certification. According to Yafimava, if this process is completed before the end of 2019 Gazprom would agree to book capacity for several years ahead. “But because it does not have to do – as it can book capacity on short term basis, the number of years for which it would be prepared to do so would depend on what Ukraine offers in exchange – out of court settlement of mutual claims, transit tariff, volume of direct supplies of Russian gas to Ukraine,” Yafimava said, arguing that it could also depend if Germany offers a positive signal on the operation and certification of Nord Strean-2, the pipeline under the Baltic Sea that will carry Russian gas to Germany bypassing Ukraine, and the European Commission confirms it has no objections.
“My view is Russia would be more likely to conclude Ukraine transit agreement for longer if it assured of no obstacles for Nord Stream-2, the logic being that Russia’s position in respect of ensuring Nord Stream-2 reasonable operation is strongest prior to the conclusion of any – and especially long-term – transit agreement. Needless to say, that if the US sanctions are imposed, this would significantly undermine the chances of the agreement,” Yafimava said.
The Oxford expert argued that there are two bilateral sets of issues between Russia and Ukraine, and between Russia and Germany, and on each set the European Commission has also a role to play, which might have to be brought together trilaterally if the transit agreement is to be signed before the New Year.
Last ditch effort to stop Nord Stream-2gas
US lawmakers are forging ahead with enactment of new sanctions meant to prevent the completion of Nord Stream-2. US Senator Ted Cruz and the other sponsors of the Protecting Europe’s Energy Security Act (PEES) have managed to add some elements of their bill as an amendment to the 2020 National Defense Authorization Act (NDAA), Chris Weafer, senior partner at Macro-Advisory in Moscow, wrote in a note to investors on 12 December. The amendment has been approved by the House of Representatives and is expected to be approved by the Senate. The NDAA is described as “veto proof” given its importance for the military and the economy, so US President Donald J. Trump will sign it into law.
According to Weafer, the wording of the amendment requires the Secretary of State to submit a series of reports to Congress identifying pipe-laying vessels for these projects as well as any persons who knowingly sold, leased or provided vessels for the project construction. Anybody so identified would be subject to immediate visa bans and asset confiscation orders.
The first such report would have to be made available 60 days after the bill is enacted. “So, assuming the NDAA is signed just before Christmas then the report would be published in late February. That does not mean the vessels may continue working ‘risk-free’ until the report is published. The sanctions threat would apply from the time the President signed the NDAA into law,” Weafer wrote.
He noted that the amendment added to the NDAA is a weaker version of the proposals included in the original PEES Act. But the language is still potentially damaging for the project and will, at least, lead to a delay in commissioning the pipeline.
The sanctions would apply both to the Nord Stream-2 and to the TurkStream pipelines and to their “successor projects”.
Currently Nord Stream-2 is 80% completed and work has already started in the Danish section after the government in Copenhagen granted approval in late October. “Further progress will be slow, irrespective of the sanctions, through the winter months due to weather conditions and environment regulations,” Weafer said, adding that Russia’s Energy Minister Alexander Novak said recently that he remains confident the pipeline will be operational “no later than mid-2020”.
“If, as German and Russian officials still expect, the pipeline is completed and commissioned by May next year, there are no current suggestions or proposals to extend sanctions to the actual flow of gas, e.g. to sanction buyers of the gas. That is also not expected given the extreme escalation in the political strains this would cause between Washington and Berlin. But it may certainly come up as a discussion point or even a new bill introduced by an irate Senator or Representative,” Weafer wrote.