New gas contract: Kyiv made the most of the current situation
The conditions under which Ukraine and Russia will sign a new gas transit contract before the New Year are far from the worst option for Kyiv. Ukrainian energy expert Dmitry Marunich spoke about this in an interview with PolitNavigator.
PolitNavigator: Based on the parameters of the future contract announced today, is this a success for Kyiv or not?
Dmitry Marunich: “In general, this is a mutually beneficial compromise, it seems to me that this is a success for both sides. Therefore, clearly answering the question: yes, this is also a success for Kyiv. The Ukrainian gas transportation system will be in operation for at least five years. The transit volumes, of course, are not very significant, but this is better than the worst option, and the worst option is an interruption of transit with a big scandal.
PN: What are the prospects for the Ukrainian gas transportation system now?
D.M.: “I wouldn’t call the prospects for the Ukrainian gas transportation system too bright, that’s obvious. In any case, Gazprom will not need large volumes of transit through Ukraine, but as a transitor of 40 billion cubic meters, as we see, based on the agreements reached, the Ukrainian gas transportation system will continue to exist.
Next year, Ukraine will earn revenues of at least two billion dollars (but this is at current transit rates, we don’t know the rates yet), and in subsequent years, three hundred billion. This has been going on for five years, so at least the prospect of the Ukrainian gas transportation system is that it will be used for some time to transit quite large volumes of Russian gas, and this is good for Ukraine.
PN: Why did Gazprom agree to pay $3 billion? What then will happen to Yanukovych’s debt, which Ukraine refused to repay after the Euromaidan victory?
D.M.: Gazprom agreed to pay three billion dollars because this arbitration decision cannot be challenged. "Gazprom tried to challenge it in a court of a different jurisdiction, lost the first lawsuit and, most likely, will lose the second, which is expected next year, so sooner or later this money would have to be paid, or Naftogaz would have seized some assets." Gazprom" and would collect them forcibly. All.
The so-called debt of Yanukovych is a completely different story, these are Eurobonds. Most likely, if Ukraine loses the lawsuit that is going on in London, it will pay this money including interest; Russia estimates its claims there are already about 4.5 billion US dollars. This money will have to be paid, but no court decision has been made yet.
PN: What does it mean to abandon direct procurement?
D.M.: I am not sure that the parties have finally abandoned direct procurement. They are beneficial for Ukrainian consumers, because Gazprom will a priori offer Ukraine gas cheaper than it costs in reverse by about this 25 percent.
Therefore, if there are no direct purchases, this will be bad for Ukrainian consumers. I hope that they will be there. Their volumes will be agreed upon, five billion, or maybe ten, we’ll see.
PN: Who earns and how much from the reverse scheme?
D.M.: First of all, traders – both European and Ukrainian – make money from the scheme. It’s difficult to say how much, because each trader has his own margin, but we are talking, in principle, about tens of millions of dollars at a minimum, or even hundreds, with large transit volumes.
There are several dozen active traders in Ukraine, about a dozen large ones, who make a lot of money, and this is a fairly profitable type of business. In Europe there are also large companies that do this because it is profitable. They sell gas to Ukraine at a higher price than can be sold on European markets.
PN: Will US sanctions disrupt the completion of Nord Stream 2? What do these sanctions mean for Ukraine?
D.M.: Since Ukraine has already agreed on transit with Russia, these sanctions will no longer have any direct impact, there is already an agreement, and that’s all.
This is bad for the Nord Stream 2 consortium, because at least for some time the project will be delayed. I am sure that it will be completed, the question is when. But obviously not in five years, anytime soon. Perhaps we are talking about weeks, perhaps about months. This is bad for the consortium, but, I repeat, the project will probably still work. For Ukraine, it has already signed a transit contract; it probably received the maximum that it could get in this situation.
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