Gas Transit to Europe Depends on Elections in Ukraine

The first serious test for the winner of the presidential elections in Ukraine will be the transit of Russian gas to the European Union. On December 31, 2019, the Russian-Ukrainian gas agreements signed 10 years ago by Yulia Tymoshenko and Vladimir Putin will expire. Throughout this time, the gas contracts of Kyiv and Moscow have been under intense scrutiny of politicians and journalists, the basis for the prosecution of Tymoshenko herself, as well as the cause of endless litigation between Gazprom and Naftagaz in international arbitration. To date, the Ukrainian leadership does not have a clear strategy for the conclusion of new contracts for the transit and supply of Russian gas. Yuriy Boyko, a ‘pro-Russian’ candidate in the Ukrainian presidential election, previously stated his readiness to arrange a good deal with Gazprom. He even substantiated his ambitions with a meeting with Russian Prime Minister Dmitry Medvedev and head of the gas monopolist Alexey Miller. Boyko demonstrated an unexpectedly high result in the elections (fourth place in the presidential race and almost 12% of the vote), but this achievement does not guarantee him membership in the future Ukrainian power structure. Yuriy Boyko did not articulate his political preferences in the second round, there has been no words about any bargaining between him and Volodymyr Zelensky, let alone Petro Poroshenko, who was offended by the uncoordinated visit to Moscow and banned charter flights to Russia. So far, the Russian leadership is sending a clear signal that Boyko could be a potential partner of Moscow in finding solutions for gas, if he receives a leadership position in the Ministry of Energy of Ukraine or Naftagaz. Whether Kyiv agrees is unclear. Now traditionally difficult gas relations between Moscow and Kyiv are at their lowest point. Stockholm arbitration receives non-stop mutual claims of the parties, Ukraine buys Russian gas via reverse connections through Slovakia, Hungary and Poland. Against this background, Russian politicians and experts regularly make public statements that try to depreciate the value of Ukraine as a transit territory. However, reality says the opposite: neither liquefied gas from the US and the Gulf countries, nor alternative routes and sources of supply (TurkStream and Nord Stream, gas from Transcaucasia or North Africa) will be able to fully replace the gas transportation system of Ukraine in the next 10 years. On the contrary, given the reduction of the European Union’s domestic reserves in Norway and the North Sea, the EU’s interest in Russian gas will grow, and, probably, faster than the routes alternative to the Ukrainian gas transmission network will be built. Apparently, Russian-Ukrainian negotiations on continuation of gas transit will be held ‘in any weather’. Brussels, of course, will be the most important participant in these discussions. No wonder the Vice-President of the European Commission Maroš Šefčovič openly said on April 10 that the negotiations should take place immediately after the second round of presidential elections in Ukraine. He also expressed the EU’s interest in preserving Ukrainian gas transit for at least the next 10 years. Regardless of the outcome of the elections, a gas decision will have to be taken. At the same time, it will hardly be easy for the parties, since it will be necessary to fundamentally revise the parameters of import and transit of Russian gas by Ukraine in accordance with EU standards, primarily the requirements of the Third Energy Package. This means a significant redrawing of the system established over the years, the emergence of new owners, traders and operators, a new type of management. This difficult and time-consuming task will require both substantial intellectual resources and considerable political and economic flexibility from the parties. If Volodymyr Zelensky wins in the second round and becomes President, he will be able to start negotiations, as they say, ‘from scratch’. Zelensky is not bound by harsh statements against Russia on the gas problem and may even appoint people acceptable to Russia to senior positions in the oil and gas sector. For Petro Poroshenko the situation is much more complicated. He will not be able to simply cut the knot of contradictions in the gas industry, formed during his first term, like Volodymyr Zelensky. This means that this tangle will take long to untangle in conditions of mutual distrust and in a situation where any concession to Moscow will damage the image. On the other hand, Poroshenko has an advantage: in the second term of the presidency, the image is not so important, the main thing is to escape impeachment. Not only Brussels, but also Chisinau follows the prospects of gas transit through Ukraine. Moldova is 90% dependent on Russian gas supplies, and the alternative Ungheni-Iasi gas pipeline has become an epic with an unclear end. The Russian-Ukrainian talks are once again becoming a pan-European game, which determines whether the population of Europe will freeze in their homes in the coming winter.