RUSSIA'S GAS TO UKRAINE

PLATTS - Russia's Gazprom continues to hold firm with regard to the future of gas transit via Ukraine to Europe, with the head of its export arm Tuesday again offering to extend the current transit arrangements past the end-2019 expiry date.

Gazprom's 10-year transit deal with Ukraine's Naftogaz expires on December 31 this year, with some in the European gas market becoming increasingly concerned that there could be disruption to Russian gas flows via Ukraine as a result.

Elena Burmistrova, speaking at a press briefing in St Petersburg, said Gazprom was interested in extending the current transit deal, adding that the company was "very flexible" about whether the arrangements would be effective in the short- or medium-term.

She also dismissed the possibility of an "apocalyptic" scenario -- a likely reference to serious disruption of Russian gas flows via Ukraine.

Kiev wants a new agreement, guaranteeing it at least 60 Bcm/year of Russian transit volumes for 10 years.

Gazprom appears unlikely to agree to committing to such volumes over a long-term timeframe, and during previous rounds of trilateral talks with the European Commission and Ukraine, Burmistrova said "no substantive agreements" had been reached.

COUNTERPARTY UNCERTAINTY

She also said the situation was complicated by the fact that it was unclear with which counterparty Gazprom should negotiate on transit terms going forward as Kiev undergoes reform in its gas sector.

"It is no secret that we do not understand who we need to be talking to," she said.

Head of department Sergey Kuznets told the briefing it was "not possible" to have a transit contract with Ukraine under European conditions at present because there was no appropriate institution in Ukraine to fulfil those conditions.

Kuznets said Ukraine needed an independent regulator and independent grid operator, which it does not have yet despite pledges by Kiev to unbundle Naftogaz.

She also pointed to the "very complex" political situation in Ukraine, saying the issue of transit would only be revisited after Ukraine's parliamentary elections at the end of July.

Burmistrova said Gazprom also stood ready to resume direct gas supplies to Ukraine. "We are ready to supply gas to end-users in Ukraine at a price 25% lower than the current price," she said.

"We need to know if Ukraine is interested in extending the transit contract and resuming imports [of Russian gas] at a more competitive price," she said.

NORD STREAM 2

Key to the Ukraine transit dispute is the fact that Gazprom can largely make the Ukrainian route redundant when it brings on line its 55 Bcm/year Nord Stream 2 and 31.5 Bcm/year TurkStream gas pipelines.

Work to begin flows via the Nord Stream 2 and TurkStream pipelines by the end of 2019 was "on schedule," she said, while also acknowledging some "working difficulties" with the projects.

"We're moving at an energetic pace -- more energetic than anticipated," she said.

A total of 1,441 km of Nord Stream 2 has been laid to date -- or 58% of the total planned 2,400 km (two strings of 1,200 km each) of the link.

The remaining obstacle to completing construction of the line was the outstanding permit from the Danish authorities, which are considering three different routes put forward by the operating company.

The Danish section is around 130 km in length and could be laid in "five weeks or less," Burmistrova said. Kuznets called on Denmark to consider the application "without bias." Asked how much gas could flow through Nord Stream 2 and TurkStream from 2020, Burmistrova was tight-lipped. "It depends on the nominations for offtake from our customers," she said.

"In the autumn/winter we will be in a position to foresee the balance and the split in flows [between the transportation options]," she said.

STORAGE INJECTIONS

In the meantime, Gazprom has been building up its gas storage volumes in Europe in recent months.

"We are currently actively working to inject gas into underground storage sites in Europe, with volumes set to exceed last year's level by 2.5 times," Burmistrova said, adding that Gazprom would continue pumping into storage facilities in Europe.

She said Gazprom's strategy was to have at least 5% of its supplies to Europe in addition to those deliveries in storage "so we can stand true to all our commitments to European customers." On the amendments to the European gas directive that came into force in May, Burmistrova said Gazprom would only consider the impact on Nord Stream 2 when it was clear how Germany planned to implement the amendments.

"It is premature to discuss. We'll see the way it will work after the legislation in Germany -- which receives the gas -- is implemented," she said.

"Only then we will need to understand if any adjustments are needed," she said.

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