EUROPE NEED RUSSIA'S GAS

PLATTS - The fourth round of trilateral talks on Russian natural gas transit via Ukraine ended with no deal being signed, Vice President of the European Commission Maros Sefcovic said Monday.

"I am disappointed with today's outcome," Sefcovic said, adding that there now must be a "clear sense of urgency" in order to come to an agreement, as "time is flying."

The current 10-year agreement between Gazprom and Naftogaz Ukrayiny expires at the end of 2019, and the EC is brokering talks aimed at putting a new contract in place to take effect from the start of 2020.

Russian President Vladimir Putin and German Chancellor Angela Merkel also discussed the transit of Russian gas to Europe via Ukraine post-2020 Monday, the Kremlin said in a statement.

"Our objective was to arrive at a common understanding on key principles regarding the future Russian gas transit via Ukraine, a clear understanding that the future transit contract would be based on a European Union legal foundation," Sefcovic said.

Sefcovic said he hoped further conversations would be had in regards to tariff methodology, volumes and duration of the future contract.

"For Russia, there are very important issues regarding finding solutions to the Stockholm ruling and anti-monopoly decisions as well as potential volumes for direct gas sales into Ukraine," Sefcovic said.

According to Sefcovic, these parameters were "acceptable to the Ukrainian side," but "the Russian delegation was not prepared to do the same at this moment in time."

'NOT GIVING UP'

Sefcovic said that he was "not giving up" and was "100% convinced that there was a balanced solution for all parties," with further talks now due to take place in November.

Sefcovic said he saw minimum transit obligations for a new unbundled Ukraine TSO at 40-60 Bcm/year with a transit contract length of a minimum of 10 years. But a five-year "walk-away clause" was suggested.

Speaking at the S&P Global Platts European Gas Conference in Amsterdam last month, Naftogaz managing director Yuriy Vitrenko said the talks were "a smokescreen" and that Moscow wanted to eliminate Ukraine as a transit route through the construction of the 55 Bcm/year Nord Stream 2 and 31.5 Bcm/year TurkStream.

RUSSIA'S VIEWPOINT

Russian energy minister Alexander Novak said after the meeting in an interview with Russia 24 TV that extending gas transit through Ukraine into 2020 under the current agreement remains a backup option.

"Although if our Ukrainian colleagues are ready to work according to European legislation, we are also ready to ensure gas transit through Ukraine from 2020 in line with this legislation," Novak said.

He added that the next round of trilateral talks will take place at the end of November.

Ukraine transited 82.5 Bcm of Russian gas to Europe in 2018 and 88.8 Bcm in 2017, but those volumes are set to slump once Nord Stream 2 and TurkStream come online next year.

Ukraine used to transit around 110 Bcm/year of Russian gas to Europe, but this fell to 65.2 Bcm in 2015 after Russia brought its 55 Bcm/year Nord Stream pipeline online in 2011.

Countries in Eastern Europe have been stockpiling additional gas to mitigate the effect of potential disruption from January 1 if Gazprom and Naftogaz are unable to reach a deal.

Sites have been filled to capacity in countries such as Hungary (6.4 Bcm), Slovakia (3.3 Bcm), Poland (3.2 Bcm) and the Czech Republic (2.8 Bcm). Ukraine's gas stocks have broken above the 70% capacity mark with 21.7 Bcm in reservoirs at the beginning of Sunday's gas day, data from UkrTransGaz showed.

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