EU Energy Chief Sefcovic Eyes Russia-Ukraine Gas Deal by June

The European Union will seek to broker a new natural gas agreement between Russia and Ukraine by the end of next month to keep the heating fuel flowing next winter, the bloc’s energy chief said.

Government experts from Russia and Ukraine had a “very good” technical meeting with EU officials on the new package last month, said Maros Sefcovic, the European Commission’s vice president for energy union. The EU’s goal is to reach a bridging accord that would stay in place until an arbitration court’s ruling on a price and debt dispute between OAO Gazprom and NAK Naftogaz Ukrainy, expected in the fall of 2016.

A new gas agreement between the two former Soviet allies would reduce the risk of supply disruption for the EU. Russian gas shipped via Ukraine accounts for more than 10 percent of Europe’s demand for the fuel. Payment disputes between Russia and Ukraine disrupted transit flows to Europe in 2006 and 2009 during freezing weather. A winter agreement that was reached in three-way talks last year expired in March.

“We had after many years a winter without any gas dramas,” Sefcovic said Thursday in an interview. “My suggestion was, ‘Let’s extend the positive experience, let’s extend the framework also for the next period.’”

Talks on a new package are mired in politics amid a deadly, yearlong conflict in eastern Ukraine with pro-Russian separatists. Moscow-based Gazprom halted gas deliveries to Ukraine for almost six months in June last year because of a payment disagreement.

Fines Waived

The EU in October brokered a five-month deal between the two countries to ensure stable supplies through the cold season, including a price discount and a waiver on take-or-pay fines levied for fuel Ukraine hasn’t imported but is obliged to pay for under contract. In March, Russia signed a similar temporary agreement with Ukraine through June, saying it would make quarterly decisions on any further accords because of volatility in the gas market.

The European Commission, the 28-nation EU’s executive arm, sent a proposal on the next package to Russia and Ukraine after last month’s talks among officials, according to Sefcovic. It remains to be seen whether another expert gathering will be needed or if a political meeting can be convened to seal the deal, he said.

Winter Season

“I hope we will be able to conclude this process and make sure that the positive experience we gathered this winter from the implementation of the trilateral framework would be extended until the case with Gazprom is resolved by the arbitrage in Stockholm, or at least until the next winter season,” Sefcovic said. “It would depend on the course of negotiations, but I very much would like to have that political meeting in May or June.”

While Ukraine can cope without Russian gas in the summer months starting in June, it must increase imports and spend at least two months refilling underground storage before the next cold season.

Ukraine bought more gas from the EU than from Russia in the first quarter, after decades of reliance on its eastern neighbor, according to pipeline operator UkrTransGaz. Imports from the EU are now set to drop because Russian gas has become competitive, according to Naftogaz.

Russia is ready to extend a discount for Ukraine until the Stockholm arbitration court rules, Russian Energy Minister Alexander Novak said April 13.

Sefcovic said the EU would like the bridging deal to be signed as soon as possible.

“I understand that the date when the Stockholm arbitrage would rule is not 100 percent precise, so that could be the reason why in the end I’d also be very happy if we would say that it would cover the next winter,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE