Destiny of Russian gas transit through Ukraine outlined

Why Naftogaz is suing Gazprom

Ukraine filed a lawsuit against Gazprom due to incomplete payment for gas supplied to Europe through its territory. Now Russian “blue fuel” is exported to the countries of the Old World through Nezalezhnaya only on one route, the rest of the transit points are closed.

The essence of the lawsuit filed by Naftogaz with the International Arbitration Court at the International Chamber of Commerce in Paris against Gazprom is as follows: the Ukrainian company is demanding funds from the Russian monopoly for services for the transportation of hydrocarbons through Ukraine, which were not paid on time in full volume. Naftogaz does not disclose the amount of the claim.

Despite the irreconcilable Russian-Ukrainian differences, the transit of natural gas from our country to European states remains relatively stable. As follows from the data of the Ukrainian operator, deliveries of our “blue fuel” to the countries of the Old World through the gas distribution system of Ukraine in mid-September are expected to remain at the same level. The application for pumping through the Sudzha measuring station (GIS) has been at the level of 40–42 million cubic meters per day since the end of May, in particular, on September 12, the daily demand for raw materials reached almost 42.5 million cubic meters.

Meanwhile, back in the spring, the Nezalezhnaya line could pump to Europe a third more than now. Starting from May 11, Ukraine has been constantly rejecting Gazprom’s application for the transit of raw materials through another large pumping channel, the Sokhranovka GIS, citing the fact that this station is located on the territory of the LPR and the facility cannot be controlled by the Kyiv security forces. The Russian monopoly, in turn, refutes such insinuations, arguing that Nezalezhnaya specialists can visit the transportation station at any time to record the volume of transit.

Despite constantly arising financial obstacles, Moscow fulfills its obligations to pay funds for gas supplies to Kyiv. “The aggressor is the aggressor, but the money is accepted, and the payment goes through,” Presidential Press Secretary Dmitry Peskov said on this occasion. The fact is that at the end of 2019, Gazprom and Naftogaz, through international courts, winning back various creditor obligations from each other, concluded a settlement agreement and signed a new contract for gas transit to Europe. For five years, Gazprom was supposed to pump at least 225 billion cubic meters. About a third of this volume – 65 billion cubic meters – was transported in 2020. Since then, Nezalezhnaya’s gas transmission networks, as noted in the long-term agreement, were supposed to transit 40 billion cubic meters of Russian gas annually (until the end of 2024).

There was another interesting point in the agreement. If Russia cannot supply the declared volumes through Ukrainian pipes, then Gazprom will have to pay for the damage for the downtime of the Nezalezhnaya transport system. During the first two years of this contract, Gazprom has fully fulfilled its obligations. Since 2022, the physical volumes of Russian gas transported through Ukrainian transport networks have been constantly decreasing for various reasons, which causes claims from both Kyiv and European consumers who believe that our country is deliberately restricting exports to aggravate the fuel shortage in Europe.

But, according to the majority of Russian experts, even in the context of a continuing reduction in supplies through Ukrainian pipes, our country will be able to fulfill its contractual obligations. Although the promised flows of Russian “blue fuel” are unlikely to be able to pass through the Nezalezhnaya pipeline system in time, Gazprom will still have to pay for the pipeline’s reserved capacity. According to the most conservative estimates, the annual transit through the Ukrainian GTS, despite the reduction in physical supplies, will be up to 3 billion euros.

“Russia’s losses are quite difficult to calculate. Even one Nord Stream 1 turbine could pump to Europe the volumes of “blue fuel” supplied to Europe comparable to Ukrainian networks before it stopped. Now, in fact, the last export pipeline from Russia to Europe has been stopped,” explains Sergey Suverov, investment strategist at Arikapital Management Company. – Under the contract with Russia, Kyiv will certainly receive money for transit in full. Despite the fact that the work on this service was never provided to the Russian side.”

However, according to the expert, the losses of the EU itself could double: Europeans will have to purchase the volumes of gas not supplied through Ukrainian pipelines from third-party dealers. And obviously overpriced. Therefore, if now the exchange price of gas has decreased, then in the near future, as the cold weather increases, it runs the risk of soaring to record levels.

Published in the newspaper “Moskovsky Komsomolets” No. 28867 dated September 13, 2022

Newspaper headline:
Kyiv hit with a lawsuit on transit