Ukraine and Russia will sign a five-year gas transit contract before the end of the year, Oleksiy Orzhel, Ukraine’s energy minister, said at a Dec. 21 press conference.
The deal will require a minimum of 65 billion cubic meters of Russian gas to be transported through Ukraine’s territory in 2020. The minimum will drop to 40 billion cubic meters for each of the subsequent four years.
The contract may be prolonged for an additional 10 years.
Russia will also pay $2.9 billion, in line with the decision of the Stockholm arbitration court, to move ahead with the new deal to supply Russian gas to Ukraine and the European Union.
The agreement will also terminate all legal action between Ukraine’s national oil and gas company Naftogaz and Russia’s state-owned gas giant Gazprom. Ukraine will withdraw its $12.5 billion claim against Gazprom. The deal doesn’t include Naftogaz’s claims against the Russian government.
“We did a practically impossible thing,” said Orzhel, referring to the agreement.
Gas deal
Despite the ongoing Russian war against Ukraine in which some 14,000 people have been killed since 2014, Ukraine remains a vital transit hub for Russian natural gas headed to the EU. Kyiv earns about $3 billion per year in transit fees, approximately 3% of the country’s annual gross domestic product.
The current transit agreement is set to expire on Dec. 31.
On Dec. 21, Orzhel said that a new agreement was reached in Minsk and will be signed before the end of the year.
The new agreement establishes a progressive tariff on transported gas – less gas means higher prices. The price itself will be counted through NCG, the European gas trading platform.
“We obeyed European rules,” said Orzhel.
The deal doesn’t involve Ukraine buying Russian gas for internal use, yet the possibility of such an arrangement is mentioned in the agreement, said Orzhel.
The protocol of the agreement is published on the government’s official website.
Money for Ukraine
The agreement will be possible after Russia pays the $2.9 billion owned to Ukraine, as determined by the Stockholm arbitration court, which in 2018 ruled that Russia and its state-owned gas giant Gazprom violated gas delivery agreements with Ukraine. In November, Gazprom lost its appeal against the decision.
Hours before Orzhel’s press conference, U.S. President Donald Trump signed a law that will impose sanctions against companies involved with the construction of the Russian Nord Stream 2 pipeline, which bypasses Ukraine.
The sanctions let Washington ban companies working with the Nord Stream 2 project from U.S. markets, as well as revoke the U.S. visas and block the property of related individuals.
If the project is completed, it will significantly weaken Ukraine’s role as a gas transit hub.
After the U.S. sanctions were announced, Allseas, a Swiss contractor crucial for the construction of the pipeline, suspended its activity.
