On 19 September in Brussels, Russia, Ukraine and the European Commission held trilateral gas talks at a political level on the long-term transit of Russian gas via Ukraine to Europe as of next year with both sides agreeing in principle that a future contract should be based on EU law, European Commission Vice President for Energy Union Maroš Šefčovič said, adding that Ukraine is gradually implementing EU energy rules. He also noted that Russian gas monopoly Gazprom is well acquainted with them in its commercial relations.

The Commission wants to secure reliable and uninterruptible Russian gas transit through Ukraine into EU countries. The current gas transit contract between Ukraine’s Naftogaz and Gazprom is valid until the end of December 2019. In 2018, 40% of gas supplied by Russia to the EU was delivered within this contract.

Šefčovič said the Trilateral Gas talks were steps in the right direction and there was a convergence of positions. He noted that the length of a future contract, volumes and the tariffs setting to be now addressed during inter-ministerial consultations with Gazprom and Naftogaz participating. “We have agreed to return to the table at political level by end of October,” he said.

According to Šefčovič, Russia, Ukraine and the EU addressed how EU energy rules should be reflected in the legal framework of a future contract, the appropriate duration of such contract, necessary volumes and their flexibility, the tariff setting and the Stockholm arbitration.

The Commission Vice President said he appreciated “a constructive approach” of Ukrainian Minister for Energy and Environmental Protection Oleksiy Orzhel, Russian Energy Minister Alexander Novak as well as Naftogaz CEO Andriy Kobolev and Gazprom CEO Alexey Miller. “There was positive atmosphere in the room. We have taken steps in the right direction today. In other words, there has seen convergence of positions on some of the issues,” Šefčovič said.

“Firstly and importantly, both sides have agreed in principle that a future contract will be based on the EU law. We have clearly described to the Russian side that Ukraine is gradually implementing EU energy rules and a future contract must respect them,” he said. “At the same time, Gazprom is well acquainted with EU rules in its commercial relations with European gas companies. This would therefore be a well-known territory,” he added.

According to Šefčovič, the Russian side has asked for assurances regarding the transposition of EU legislation into the Ukrainian law – that it is indeed the case. “We will accelerate the work of EU Energy Community so that transposition is on time and correct. In this context, the good news is that we have clear progress on unbundling of Naftogaz. The Ukrainian Government had made it its priority and I congratulated the Minister on the adoption an action plan/roadmap yesterday that paves way for a fully unbundled independent transmission system operator to be established – and certified according to the EU law – by the end of this year. I appreciated that the CEO of a company being formed was also present here today,” Šefčovič said.

“Concerning the duration of a future contract, volumes and the tariffs setting, we have had convergence of minds. We need an agreement on all three elements, as they are interlinked. The volumes are key for the tariffs setting. The duration of a future contract is important for investment into the Ukrainian transit system,” he said, explaining that for Ukraine, well-functioning transit with volumes for EU consumers is the most important issue while Russia puts emphasis on direct sales to Ukrainian consumers. “These issues are to be discussed,” he said.

He hailed the presence of the Ukrainian independent energy regulator in Brussels on 19 September. “It was useful to hear a clear explanation how EU legislation would be transposed, what it would mean for the tariff setting according to EU methodology under a future contract,” Šefčovič said.

Preparations for winter

Turning to preparations ahead of this winter, ne assured that that EU underground storage filling levels are very good – currently standing at 96% of full capacity. Ukraine’s underground storage filling levels are also good – currently at around 19.6 billion cubic metres, almost 4 billion cubic metres above levels in September last year, he said.

“Now the next steps: I am glad we have established positive, constructive working atmosphere between the two Ministers. We have agreed that there will be an inter-ministerial consultation with the two companies participating to hammer out the remaining interlinked issues,” Šefčovič said.

He said political talks would resume by the end of October “when, I hope, we will have more progress on the remaining issues. We will remain in contact in the meantime. With Ukraine, we will work closely on the unbundling and certification process as well as on the transposition of EU legislation into the Ukrainian law.”

Šefčovič concluded that the constructive talks on 19 September create a necessary precondition for the next round of trilateral gas talks and for having everything settled before the end of this year.

Meanwhile in a statement issued after that talks Naftogaz noted the interest of the Russian side in constructive negotiations and their higher willingness to accept the modern regulatory framework for gas transmission via the Ukrainian GTS. Naftogaz said that for the first time Gazprom accepted a possibility to work in line with European rules since 1 January 2020 if they are fully implemented in Ukraine by the end of this year.