The tariff for pumping Russian gas through Ukraine in 2019 was calculated at a rate of $ 2.61 per 1 thousand cubic meters. m per 100 km, reminds director of research at Vygon Consulting Maria Belova. The new contract provides for the growth of this rate by 1.9%, she points out. This is confirmed by the Deputy General Director of the Institute of Energy and Finance Alexey Belogoryev.
Representatives of Gazprom and Naftogaz do not comment on the increase in tariffs. The final tariff increased, but the volume of gas pumped through Ukraine decreased, a source close to the Russian side of negotiations with Naftogaz noted, – in 2019 Gazprom pumped about 90 billion cubic meters through Ukraine. m, that is, almost 1.5 times more than the current plan.
The transit rate in the new contract is fixed for the entire duration of its validity. In the previous contract, which was valid for ten years, until the end of 2019, the transit rate was not fixed – it was calculated using a formula that was linked, inter alia, to the cost of gas in Europe and pumping volumes. At a fixed rate starting in 2021, when the minimum transit volume of Russian gas is reduced to 40 billion cubic meters. m., this tariff will not cover the cost of pumping gas through the Ukrainian gas transportation system, especially in case of rising gas prices for technological needs, Belogoryev draws attention.
How much will Gazprom pay for the extra-large
If Gazprom decides to increase supplies to Europe through Ukraine in excess of the volumes specified in the new contract, the company will have to reserve additional capacities in the Ukrainian gas transportation system. In this case, the contract provides for increasing coefficients for transit: booking additional capacities per quarter will cost 1.1 times more than the usual rate, per month – 1.2 times, per day – 1.45 times. That is, the maximum rate increase will be up to 45%.
Additional transit for Gazprom may be required in several cases:
- The company will need to supply additional volumes of gas through Ukraine if demand for this fuel grows in Europe compared with current figures (in 2019, Gazprom supplied Europe with about 199 billion cubic meters compared to 201.8 billion cubic meters a year earlier) or Gazprom will not be able to agree to extend the transit agreement with Poland through the Yamal-Europe gas pipeline (its design capacity is 32.9 billion cubic meters per year), which expires in May 2020, says Dmitry Marunich, co-chairman of the Ukrainian Energy Strategy Fund. He suggests that such additional capacities in the Ukrainian direction may be required already in the second half of 2020.
- In August 2019, Petr Naimsky, the representative of the Polish government for strategic energy infrastructure, announced that Poland intends to review the conditions for pumping Russian gas through the Yamal-Europe pipe through the territory of this country. According to him, annually 29 billion cubic meters of gas are pumped through Poland to Poland. m of Russian gas, but transit is paid at such low tariffs that the country’s revenues amount to only 21 million zlotys (approximately $ 5.4 million).
- In order to reduce transit through Ukraine, Gazprom planned before the end of 2019 to launch the Nord Stream-2 gas pipeline with a capacity of 55 billion cubic meters. m per year on the bottom of the Baltic Sea. But the project for a long time could not get permission from Denmark to lay a pipe in its territorial waters, and at the end of 2019, the United States imposed sanctions against its contractors. As a result, it was necessary to postpone the launch of a new gas pipeline, already built by more than 90%.
- In 2020, Gazprom will have sufficient volumes of 65 billion cubic meters to meet the needs of European consumers. m, Belova objects. “Despite the fact that the delay in launching Nord Stream 2 required the pumping of an additional 10 billion cubic meters. m through Ukraine, Gazprom last year pumped into the European underground gas storage facilities even more than this volume, ”she points out. Vygon Consulting considers it unlikely that the transit of Russian gas through the Yamal-Europe gas pipeline will stop after the contract expires.
- But already at the beginning of 2021, Gazprom may need additional capacities in the Ukrainian gas transportation system, while commissioning of the Nord Stream-2 will be carried out if it is completed, Belova notes. “We can talk about booking the system for two quarters in the amount of 10 billion cubic meters. m and an additional transit fee of $ 350 million. The daily supply of over-limit gas can be useful to Gazprom only in case of abnormal weather conditions in Europe or accidents on other export routes, she added.
- Ukraine expected that total revenues from Russian gas transit for 2020–2024 (taking into account the reservation of additional capacities) will amount to $ 15 billion. This was stated by Minister of Energy of Ukraine Alexey Orzhel, who estimated annual transit payments at $ 3 billion over five years.
Where contract disputes will be resolved
In the new transit agreement between Gazprom and Naftogaz, not only the calculation of the tariff and the required volumes of gas pumping were changed, but also the jurisdiction to consider potential disputes between the parties. In a previous contract, all disputes were to be considered by the Stockholm International Arbitration Court. It was this court in 2018 that ruled in favor of Naftogaz, obliging Gazprom to compensate the Ukrainian company for $ 2.56 billion for gas shortages under a transit agreement. As a result, taking into account the accrued interest, the Russian company had to pay Naftogaz $ 2.9 billion at the end of 2019. This payment became a condition for continued transit of Russian gas from the beginning of 2020.
Now, disputed issues will be resolved in another international arbitration court – at the International Chamber of Commerce in Zurich (ICC). But, like the previous contract, the new contract is governed by Swedish substantive law. According to Arthur Zurabyan, Head of Dispute Resolution Practice at Art de Lex Law Firm, the choice of court in Switzerland is determined by the more balanced attitude of this country to sanctions against Russia in comparison with other EU states. “Formally, Switzerland supports EU sanctions, but, in essence, takes a more balanced position, which allows it, in particular, to export food and other goods to Russia,” the lawyer explains.
This position is due to 300 years of experience of Swiss neutrality in any international conflict, adds Alexander Zakharov, partner of Paragon Advice Group. According to him, Gazprom could insist on the jurisdiction of Zurich, being guided by the fact that in the Stockholm court he was not able to defend his position.