Naftogaz Open To Negotiations With Gazprom

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Ukraine has fully complied with the Brussels agreements and expects Gazprom to honour its obligations in the same manner

Russia’s statement that the gas price reduction which is part of the “winter package” signed in Brussels last October is to be abolished from 1 April 2015 is not surprising since the existing agreement is valid only until the end of March. The previous contract terms make buying from Gazprom significantly less economically attractive to Ukraine than buying from our European partners. Naftogaz is ready to hold talks with Gazprom to agree mutually acceptable terms for Russian gas supplies to Ukraine.

Gazprom has lost nearly two thirds of its market share in Ukraine and was forced to provide maximum flexibility of supply

The “winter package” signed by Ukraine, Russia and the EU sets temporary terms for gas purchases from Gazprom. These terms are inferior to those currently offered to Naftogaz by European suppliers. As a result, Gazprom’s market share in Ukraine has decreased in favour of European companies.

In December 2014 Ukraine purchased about 1.5 billion cubic meters (bcm) of gas abroad (compared to 2 bcm in December 2013). Of this volume, 33% was imported from Russia and 67% came from Europe (in December 2013 Russia’s share of imports stood at 95%). Withdrawals of gas from underground storage facilities in December 2014 were on par with the figure from December 2013 (2.55 and 2.53 bcm, respectively). In November 2014, Ukraine did not buy any gas from Russia.

Considering the uncompetitive Russian gas prices, Ukraine currently views Gazprom as a balancing supplier of last resort.

Insistence on outdated conditions will lead to a further reduction of Gazprom’s market share in Ukraine

“Last year Ukraine almost halved the level of Russian gas we purchased compared to the year before. If Gazprom fails to come up with competitive conditions, this trend will continue. The European gas market is financially more attractive to Ukraine and thus the complete removal of Gazprom from the Ukrainian market may only be a matter of time,” said Andriy Kobolyev, Naftogaz CEO. The Ukrainian domestic natural gas market is the largest in Eastern Europe and was previously one of Gazprom’s three biggest export markets by both volume of gas sold and revenue.

It is important to underline that this will not affect the transfer of gas through Ukraine: Naftogaz will continue to transport Russian gas to Europe with the utmost reliability.

Naftogaz is ready to negotiate new terms with the participation of the European Commission

Naftogaz is open to discussion of supply conditions by Gazprom to the Ukrainian market regarding the period after 1 April 2015. Given the constructiveness, transparency and effectiveness of the talks held in Brussels last year including representatives of the European Union, Naftogaz suggests negotiating a similar trilateral agreement and is ready to do so.

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) is currently deliberating on dispute settlement between the parties. In particular, Naftogaz is seeking to recover overpayments amounting to about $6 billion for gas supplied by the Russian monopolist to Ukraine since 2010. In accordance with the Brussels agreements Naftogaz has paid $3.1 billion for 11.5 bcm of gas it imported in 4Q2013 and 2Q2014. A decision on whether Naftogaz shall make any extra payment for this gas will be made by the SCC in due course.

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