The ongoing Ukrainian-Russian geopolitical tussle once again enters the realm of energy as trilateral gas-transit talks are set to resume in Brussels on October 28 between Moscow and Kyiv.
Ukraine is entering the talks, mediated by EU Energy Commissioner Maros Sefcovic, as its 10-year contract with Russia expires at the end of the year but with enough natural gas in storage to last through the winter.
A mild fall season so far has helped Ukraine, whose state-run Naftogaz oil and gas conglomerate has stored 21.6 billion cubic meters (bcm) of gas ahead of the winter, more than a quarter of what it had during this period last year.
Sefcovic, a Slovak politician fluent in Russian, is leading the gas talks.
“I want to develop the constructive spirit that emerged during our last negotiations,” he said on October 25.
Slovakia is a key “reverse-flow” gas hub from which Ukraine derives the blue fuel after technically exporting it from Russia through its pipelines that it buys back.
Kyiv hasn’t bought Russian gas directly since 2015, a year after Moscow sent masked soldiers without military insignia to seize Ukraine’s Crimean Peninsula, followed by fomenting a separatist war in the two easternmost regions of Luhansk and Donetsk in a war that has killed more than 13,000 people.
Kyiv and the UN have accused Russia of rampant human rights abuses in Crimea and Ukraine’s intelligence agencies have alleged that Moscow has engaged in widespread information warfare to discredit the country while engaging in cyberattacks that have at times temporarily dismantled electricity grids.
Russia denies being a party to the Donbas conflict and has rejected allegations of cyberattacks.
In the previous three-way gas talks on September 19, a long-term agreement wasn’t reached, a deal upon which the EU partially relies on as it seeks to maintain secure supplies during the winter.
Ukraine and Russia have been negotiating over the duration of a new contract, transit volumes, and tariffs.
At stake is about $3 billion in annual gas transit fees that Ukraine usually receives from Russia for transmitting gas to EU countries.
However, these flows could diminish or stop altogether as Moscow pursues the Nord Stream 2 project to build a pipeline under the Baltic Sea, bypassing Ukraine, that could go online as soon as spring 2020. Another project Russia is working on is TurkStream, which will also circumvent Ukraine and deliver gas to Bulgaria, Serbia, and Hungary to the south.
Kyiv entered the gas talks in Brussels supporting the EU’s proposal to receive at least 60 billion bcm of flows a year, or about 75 percent of what Russia sent through Ukraine last year.
The meeting came a day after the Ukrainian government passed a resolution to separate the country’s 38,000-kilometer gas-pipeline network from state-run oil and gas conglomerate Naftogaz.
From January 1, a new state-owned entity will handle gas transit through Ukraine to eliminate possible conflicts of interest and increase transparency on the energy market.
As a member of the EU’s Energy Community, Ukraine is committed to abide by EU energy regulations.
Last year, Ukraine’s gas transit operator accounted for 45 percent of Naftogaz’s operating cash flows, or nearly $1 billion. It is connected to pipeline systems in neighboring Russia, Belarus, Slovakia, Poland, Hungary, Romania, and Moldova.
The gas talks are also taking place as Russia’s Gazprom and Ukraine’s Naftogaz are suing each other in foreign jurisdictions over contractual disputes worth nearly $3 billion.
Naftogaz has emerged with the upper hand and has been trying to recover the money that Russia has refused to pay after it had lost arbitration court rulings by freezing Gazprom's foreign assets.
Naftogaz has sought Gazprom assets in the United States, United Kingdom, Luxembourg, Switzerland, and the Netherlands in efforts to recover some $2.6 billion.