TOPIC PAGE: Ukrainian gas transit negotiations

Note: this article is no longer updated and is held on the ICIS archive. 

LONDON (ICIS)–Ukraine and Russia are locked in negotiations over the transit of gas that could change the supply dynamics to Europe and Turkey from 1 January 2020.

While Ukraine would like to retain its historical role as Europe’s most important transit route, Russia plans to divert supplies to its new pipelines, Nord Stream 2 and TurkStream.

In this dedicated topic page, ICIS brings updates on discussions as well as supporting material to help stakeholders navigate latest developments.

LATEST UPDATES

31 December 09:44

Ukraine and Russian officially signed the new transit agreement that will cover a minimum of 65 billion cubic metres (bcm) per year in 2020 and 40bcm/year between 2021-2024.

27 December 16:47

Ukraine’s new TSO has been certified ahead in time for the 1 January 2020 deadline, with transmission tariffs on most border points also set.

27 December 14:00

Turkish gas companies are expecting to off-take Russian volumes from a new delivery point from January 2020,  as volumes will be diverted from the Trans-Balkan line to the new TurkStream corridor.

23 December, 16:50

An updated story with full details on the transit agreement protocol and what it will mean for both Ukraine and Russia is available here.

23 December, 16:16

Ukraine transit deal pressures gas curve as uncertainty moves to Nord Stream 2

European natural gas prices for 2020 delivery fell on Monday 23 December after an agreement was signed for the future transit of Russian gas to Europe via Ukraine.

The Dutch TTF Q1 ‘20 contract opened 5% below the close on Friday 20 December, with January ‘20 down by 4%, according to trades submitted to ICIS.

“Nord Stream 2 is the issue now,” one trader said, adding that delays would lead to a premium on the Summer ’20 contract, cutting its spread to Q1 ’20.

POWER MARKET REACTION

European power markets closely tracked gas prices in December as speculation intensified over the transit negotiations.

By 12:00 London time on 23 December the German power January ’20 baseload had shed 5% from the previous close, with the same French product dropping 6%.

With gas-for-power generation ramping up across Europe in 2019, power traders have increasingly looked to gas markets for pricing signals.

23 December, 12:02

Ukraine, Russia sign gas transit, legal claims protocol

Ukraine and Russia signed on Friday a protocol for the transit of gas to Europe from 1 January 2020.

As expected, the document covers the key issues of transit over the upcoming five years as well as the settlement of outstanding Gazprom debt to the Ukrainian incumbent Naftogaz and the cancellation of its ongoing multi-billion dollar legal claims.

It also includes a controversial arrangement where Gazprom would sign the transit agreement with Naftogaz, which would in turn sign an interconnection agreement with the new transmission system operator of Ukraine. Naftogaz is also expected to book capacities on behalf of Gazprom and take on any transit tariff risks.

Under the document officially published on 21 December, Russia’s Gazprom will transit 65 billion cubic metres (bcm) of gas for the first year of the transit in 2020. The volumes will then be reduced to 40bcm/year between 2021-2024. The parties can renew the contract for another 10 years from 2025.

The volumes will be only half of what Russia has been shipping via the Ukrainian system under the existing 10-year contract which expires at the end of this year.

An unofficial English translation of the protocol was published by consultancy Tumbleweed Partners here .

20 December, 16:45

Ukrainian and Hungarian gas interconnection deal signed

Hungarian gas transmission system operator FGSZ and its Ukrainian counterpart Gas TSO announced an interconnection agreement at the Berehove and Beregdaroc interconnection points on 20 December.

The agreement will take effect from 1 January 2020, with “standard business rules” now applying to the Berehove interconnection point, which was previously unable to be used by other market participants due to Russian Gazprom’s long-term contract, according to a statement from Gas TSO.
Source: Gas TSO
20 December, 10:55

Prices tumble after ‘in principle’ Ukrainian gas transit deal reached

Ukraine and Russia have ‘in principle’ reached an agreement on all key elements for the transit of gas via Ukraine from 2020 although, the European Commission vice-president Maros Sefcovic said on Thursday.

However, a source close to discussions told ICIS that no agreement had been signed yet and that negotiations were ongoing.

Speaking briefly after nearly nine hours of negotiations in Berlin, the EU mediator said the deal was still to be discussed in Kyiv and Moscow on Friday.

PRICE REACTION

The news late on 19 December saw a lot of risk premium drain from contracts for delivery in the first quarter of 2020.

On 19 December the TTF Q1 ’20 closed at €15.025/MWh and opened the session the next day trading at €13.95/MWh.

The product had moved up slightly to €14.05/MWh by 10:00 London time, just under a euro lower than the previous close.

The TTF January ’19 contract started trading at €13.750/MWh on the morning of 20 December, after closing at €14.975/MWh the day before.

By 10:00 the Dutch front month was had risen slightly to €14/MWh, which was still below the previous close.

18 December, 17:13

‘Close to zero’ chance of gas transit deal – Naftogaz CEO

The Dutch TTF January ’20 contract spiked this afternoon after the CEO of Ukrainian state gas company Naftogaz said the probability of agreeing a new transit deal with Russia’s Gazprom before the end of the year was “close to zero”.
Transit jitters drive TTF front-month spike
“It seems to me that now we can say that the probability of the signing of the transit contract by the 1 January is very close to zero, very small,” Andriy Kobolyev said.

“It’s continuously approximating towards zero with every minute.”

18 December, 14:57

Transgaz agrees to release Ukraine-Romania capacity

Gas TSO of Ukraine and Romanian system operator Transgaz signed an interconnection agreement to offer capacity on the Trans-Balkan pipeline to the market from 1 January 2020.

In the new year shippers will be able to access 17.8 million cubic metres (mcm) per day from Ukraine to Romania via the Isaccea 1-Orlovka point.
Access to 15.8mcm/day for flows in the opposite direction will be made available from the same date.

This will allow shippers to move volumes north into Ukraine and Moldova via countries like Turkey and Greece.

17 December, 17:11

TTPC offers emergency Algeria-to-Italy gas capacity until March 2020

LONDON (ICIS)–The Availability of additional export capacity to Italy on the Trans-Tunisian pipeline could reduce the risk of price spikes and increase Italy’s security of supply in the first quarter of 2020, Italian gas traders told ICIS.

According a statement released by the Trans Tunisian Pipeline Company (TTPC) on 16 December, shippers who hold transport capacity on the Trans Tunisian pipeline will be able to book additional capacity in the event of a “system critical situation” and for the duration of the same.

This would be triggered for the Alert or Emergency Levels of the emergency plan for the Italian natural gas system issued by the Italian Ministry of Economic Development.

The TTPC is an onshore pipeline that crosses Tunisia owned by Italian energy major ENI and is the main route for Algerian pipeline deliveries to Italy.

The announcement made by the TTPC on 16 December came as uncertainty surrounds the renewal of the Russia –Ukraine transit deal for the upcoming year –a key supply route to Italy.

The arrangements are made available to shippers from 16 December until further notice or at the latest by 31 March 2020, TTPC said.

16 December, 14:49

Trans-Balkan gas capacity sold through RBP

On 16 December the Hungarian Regional Booking Platform sold all 169GWh/hour of capacity offered for use in January 2020 on the Negru Voda 1-Kardam point on the Trans-Balkan pipeline, which allows shippers to move natural gas between Bulgaria and Romania.

This may have been an indication that gas from the TurkStream pipeline may be shipped to southeast Europe in reverse along the Trans-Balkan line in January next year.

13 December, 17:34

Ukraine may extend capacity booking deadline for Russian transit

Russia’s Gazprom may have until 31 December to book capacity for the transit of Russian gas via Ukraine after the deadline is set to be extended, Yuriy Vitrenko, executive director of Naftogaz confirmed to ICIS on Friday.

Under a resolution by the Ukrainian regulator NERC published on 14 November 2019, the Russian producer was expected to book annual capacity of up to 14 years by Friday, 13 December,

However, following another round of talks in Vienna on Friday, Naftogaz, the Ukrainian gas grid operator and Gazprom agreed to continue discussions.

FRANTIC SELLING

Earlier reports by the Russian wires on Friday had suggested that a preliminary agreement may have been reached.

A Gazprom statement published later in the day appeared to reject the claims, merely stating that the parties had discussed cooperation in the gas sector from 2020.

Nevertheless, the reports led to frantic selling on European markets around 15:00 London time, when the TTF Q1 ’20 price dropped by around €0.50/MWh in less than 20 minutes to deal below €14.00/MWh.

PODCAST

With less than a month until a 10-year contract for the transit of Russian gas to Europe and Turkey via Ukraine expires, it is still unclear whether Ukraine and Russia would agree to sign a new agreement from 1 January.

In this podcast, Aura Sabadus, Ben Samuel and Patrick Sykes discuss the latest developments, their impact on gas prices and the gas and LNG outlook for January 2020.

RECENT COVERAGE

US sanctions against Nord Stream 2 up for final sign-off

Turkey opens first ever spot import capacity booking on Trans-Balkan pipeline

Ukraine may extend capacity booking deadline for Russian transit

US sanctions on Nord Stream 2 gas link unacceptable – German MPs

Romania offers reverse gas capacity on Trans-Balkan pipeline

Ukraine’s Naftogaz ready to buy Russian gas, drop legal claims if long-term transit agreed

Ukraine, Turkey emerging as eastern European gas transit options

Swedish court rejects Gazprom’s $80bn Naftogaz claim

For an in-depth explanation of the details of the negotiations, click here:

ICIS EXPLAINS: EU, Russia and Ukraine’s gas transit negotiations