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

LONDON (ICIS)–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.

“After this intensive talk I am very glad to say we reached an agreement in principle on all key elements which I believe is very good and positive news for Europe, Russia, Ukraine and gas markets and for citizens in all countries,” Sefcovic said. Further details of the deal were not given.

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.

NEGOTIATION STATEMENTS

In a statement posted on Facebook late on Thursday night, Yuriy Vitrenko, Naftogaz executive director said: “The basic principles of the agreements, which require further agreement at the political level, have been worked out. After that, the issue will be in the implementation of these agreements at different levels.

“Naftogaz occupies the most constructive position in these negotiations – Ukraine reaffirms its reliability as a gas transit to Europe.”

The discussion on Thursday was the fifth trilateral talk between Ukraine and Russia this year and mediated by the European Commission.

The event follows a flurry of contradictory statements in recent days.

On Thursday afternoon the Russian president Vladimir Putin told a domestic press conference that Moscow planned to keep the transit through Ukraine even after a long-term transit agreement expires at the beginning of the gas day on 1 January 2020.

However, a day before, Naftogaz CEO Andriy Koboliyev told a press conference on Wednesday that the probability of agreeing a new transit deal with Russia’s Gazprom before the end of the year was close to zero.

Ukraine and Russia are locked in ongoing negotiations over a new transit deal via Ukraine from January 2020.

Ukraine expects to sign a deal for at least 10 years based on EU rules.

Russia has conditioned signing the agreement on Ukraine dropping ongoing legal cases against Gazprom, buying supplies directly from Russia and establishing an independent transmission system operator from 1 January 2020.