Ukrainian transit: battles by battles, but gas on schedule

Expert Yushkov considered minimal chances for a new agreement between Kiev and Moscow

By not extending the agreement on the transit of Russian gas, Ukraine will cause great damage to the European Union and “shoot itself in the foot,” said Russian Deputy Foreign Minister Mikhail Galuzin. The fact that Kyiv made such a decision was previously reported by the former head of the Austrian oil and gas company OMV Gerhard Reuss, citing the words of the Deputy Minister of Energy of Ukraine Mykola Kolesnik. According to experts, this scenario is unlikely to be avoided: the differences between Moscow and Kiev on transit look insurmountable.

The parties extended the contract in 2019, it expires at the end of this year. It stipulates the transit of 65 billion cubic meters in 2020, and then – 40 billion annually for three years.

But this is on paper; in reality, much less is supplied. Today, the branch through Ukraine is the only route for Russian gas supplies to the countries of Western and Central Europe. In the spring of 2022, the “GTS Operator of Ukraine” announced the impossibility of pumping through the Sokhranovka gas measuring station, since it is located in the LPR. Now raw materials are transported through the Sudzha GIS, in the amount of about 40 million cubic meters per day.

According to Mikhail Galuzin, the Russian side did not receive any notifications about Kyiv’s intention through official channels. However, the diplomat commented on the situation, noting that it would have a negative impact on Europe’s energy self-sufficiency, and that Ukraine would also suffer losses, as it would “lose dividends from transit.” That is, – foreign exchange earnings that go directly to the country’s budget and, according to independent analysts, can be up to $3 billion annually. By the way, from June 1 of this year, the Ukrainian side raised the tariff for this very transit by 25%, and Russia accepted this condition.

It is no coincidence that The Washington Post previously wrote that Ukraine is lobbying for the preservation of the transit of energy resources from the Russian Federation through its territory in order not to lose money and continue to serve European countries dependent on Russian raw materials, such as Austria. In turn, the head of Naftogaz, Alexei Chernyshev, acknowledged that Kyiv needs transit income and wants to be a reliable economic partner for the EU and continue to fulfill its contractual obligations. So, it should not block pipelines. But then on what basis did Mykola Kolesnik, Deputy Minister of Energy of Ukraine, reject the possibility of extending the contract after 2024? We asked Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, about this.

What else could he say? Yes, will we continue to cooperate with Russia as if nothing had happened? In the current domestic political situation in Ukraine, such a statement of the issue is unsafe, a person would bring on himself a lot of problems, – the source of MK argues. – Therefore, he answered “politically competently.” At the same time, the chances of extending the contract are really small, given the acuteness of the mutual claims of the two parties under the current contract. Judge for yourself: the “GTS Operator of Ukraine” accuses “Gazprom” of failing to comply with the “pump or pay” condition, and formally fair. In turn, Gazprom, also quite reasonably, points out to Ukrainian opponents the violation of the condition under which it can freely choose the route for the delivery of raw materials.

After all, Kyiv blocked one of the branches – the southern route through the GIS “Sokhanovka”. Accordingly, Gazprom is forced to pump gas only through the northern route – GIS Sudzha. According to the “pump or pay” condition, the company must daily drive 109 million cubic meters of gas, but in reality it comes out no more than 42-43 million. How can you sign a new contract without resolving disagreements over the old one? It is not a fact that the current one will survive until the end of 2023: for example, the United States may well put pressure on Ukraine, and it will stop transit ahead of the deadline specified in the documents.

– Who will suffer from such a development of events in the first place?

– Russia will reduce the volume of supplies to Europe by half: the Ukrainian route (through the Sudzha GIS) provides about 15 billion cubic meters per year, there is also the Turkish Stream gas pipeline, through which Europeans receive about the same amount.

In both cases, a little. But at the same time, through the Turkish Stream, gas goes to the countries of Southern Europe, the Balkans, and the maximum where it reaches is Hungary. And Ukraine needs transit to Germany, Austria, the Czech Republic, Slovakia, France, and if it is stopped, these countries will lose Russian gas. Which, however, will not be a disaster for them.

If we talk about Europe as a whole, it is systematically reducing the volume of gas consumption: in 2022 – by as much as 60 billion cubic meters. Due to this, as well as through purchases of LNG, it manages to level the domestic market. Now the Europeans are actively building new generation LNG receiving terminals and interconnectors to deliver raw materials deep into the continent and thereby fully meet the demand for it.