Europe Proposes Ukraine-Russia Gas Deal

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The European Commission (EC) wants to host gas talks between Ukraine and Russia in an effort to head off potential gas shortages throughout Europe this winter.

The news comes as Ukraine announced a number of measures to overhaul its energy sector in the wake of ongoing conflict with Russian forces that has crippled its energy sector and economy. The situation has been exacerbated by a multi-billion dollar lawsuit between Ukraine's state-owned gas company, Naftogaz (Kiev), and Russia's state-owned Gazprom (Moscow) over supplies.

About 30% of Europe's gas needs are met by Russian imports and half of that--roughly 80 billion cubic meters (bcm)--comes through Ukraine. The EC was instrumental in negotiating a winter gas deal last year. For additional information, see October 6, 2015, article--Europe Brokers Russia-Ukraine Winter Gas Deal.

Speaking on a visit to Kiev last week, EC Vice President Maros Sefcovic said that the trilateral talks are the best solution to guaranteeing a "winter package".

"We want to re-launch the successful trilateral format of gas talks involving Ukraine, Russia and the European Commission," he said. "In the past, this forum has proven its usefulness: it is better for all to sit down together around one table. Russia as an exporter, Ukraine as a transit country and the European Union (EU) as the main importer share a common interest of predictability. The trilateral format remains the most suitable for discussing gas supplies for the upcoming winter heating season. In this sense, I am also looking forward to meet with Russian authorities in the next weeks".

Ukraine has not taken gas supplies from Gazprom since last November, relying on its own domestic production and gas from the EU. Naftogaz estimated that it needed around 14.5 billion cubic meters of gas by late October to cope with winter demand, with imports from the EU accounting for roughly 3 billion cubic meters.

Ukraine has announced plans to unbundle its gas supplier Naftogaz, which would see its gas transmission assets move to a new, standalone transmission system operator (TSO). Sefcovic has praised the plans but wants to see them implemented soon to improve the country's energy situation and cut its reliance on Russian supplies.

"Further reforms are central for modernising Ukraine's economy, to bring advantages to consumers and enterprises alike, and thereby to unlock the potential for higher standards of living," Sefcovic explained. "In this sense, I welcome the decision of the government of Ukraine on the unbundling of Naftogaz. It is now important to implement this decision swiftly and consistently in the months ahead. In parallel, Ukraine's potential in the field of energy efficiency and renewable energy is huge: Would Ukraine manage to increase its energy efficiency levels to the EU average level, the savings achieved would be greater than the energy consumption of Spain over a whole year. Ukraine could thus even become an exporter of energy".

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