Partner Perspectives

A Snapshot of Key Developments in the External Relations of the Russian Gas Sector (Issue 71)

26 MINS READJun 9, 2017 | 14:03 GMT

By Dr. Jack Sharples for European Geopolitical Forum (EGF)

Key points:

  • Gazprom and the EU:

o   Gazprom on the European market: Conclusions European Commission receives feedback from stakeholder on Gazprom’s antitrust proposals

o   Gazprom in the Baltic region: Latvian gas market opened to competition

  • Nord Stream: EU Commissioners write to Danish and Swedish governments to confirm stance on Nord Stream II: Nord Stream II project takes significant step forward with financing deal involving five European energy companies; Nord Stream 2 AG signs pipe-laying deal with Allseas; Lithuania joins Poland in opposition to EU-Gazprom agreement over OPAL pipeline
  • Southern Corridor: Gazprom claims it is ready to begin construction of first offshore line of Turkish Stream pipeline ‘within days’
  • Ukraine/Belarus: Antimonopoly Committee of Ukraine requests seizure of Gazprom assets in Ukraine over unpaid fine; Expected arbitration ruling on Gazprom-Naftogaz dispute pushed back to May-June; Belarus pays off gas debts to Gazprom and signs protocol on gas prices in 2018-19
  • Asia: Gazprom announces that 650km of the Power of Siberia pipeline has been built

Gazprom and the EU

Gazprom on the European market

European Commission receives feedback from stakeholder on Gazprom’s antitrust proposals

In last month’s edition of the Gazprom Monitor we examined the publication of Gazprom’s proposed commitments, and the invitation for feedback from stakeholders. The deadline for the submission of that feedback passed on the 4th of May, and the European Commission must now consider the opinions of stakeholders before deciding whether or not to accept Gazprom’s commitments.

If the Commission does decide to accept the proposed commitments, they will enter into legal force ten weeks from the date of the Commission’s acceptance.

In last month’s Gazprom Monitor, we noted the stance of the Polish government and the Polish state-owned energy company, PGNiG, which both suggested that the proposals did not go far enough.

On the 27th of April, the Estonian government issued a statement[1]:

Estonia considers that the competition proceedings should put an end to the abuse of a dominant position, followed by a fine imposed on Gazprom. Estonia considers that in this case the Gazprom’s commitments are not proportional to the extent of the infringement. In Estonia’s view, the measures in the commitments submitted by Gazprom are of a temporary nature and do not guarantee long term acceptable gas prices to consumers.

The solution lies in the introduction of alternative sources of supply in the Baltic and Finnish markets. Therefore, the establishment of cross-border connections, such as the gas transmission system interconnections between Estonia and Finland and Poland and Lithuania, which are already being constructed, should continue.

Estonia considers that only the diversification of supply and free competition will guarantee acceptable prices for consumers and that no single supplier is in a position to control the market.

In the event that the Commission finds that Gazprom’s commitments are sufficient to address the competition concern in Central and Eastern European gas markets, these commitments should be supplemented so as to remove the effects of the abuse of a dominant position and ensure that such situations are prevented in the future.

On the 4th of May, the Lithuanian Energy Ministry posted a statement on its website[2]. In that statement, the Lithuanian Energy Ministry notes that the provision of gas supplies to Lithuania at a ‘fair’ price is ensured not by Gazprom’s proposed commitments, but by the installation of the Klaipeda LNG import terminal. The statement also challenged the fact that the commitments do not contain any compensation for “damages incurred by consumers in Lithuania and the entire region because Gazprom’s past abuse of its monopolistic position”.

The installation of the new LNG terminal is not directly relevant to the question of whether or not the proposals should be approved, and the question of compensation for alleged over-charging was dealt with in June 2016, in a commercial arbitration case between Gazprom and the Lithuanian gas importer, Lietuvos Dujos.

However, the Lithuanian statement does add further reasons for Lithuanian dissatisfaction with the proposals:

Commitments important to Lithuania relating to gas exchanges and possibilities to change gas delivery points and possibilities to renegotiate gas prices are in principle ineffective because of numerous unreasonable and superfluous additional conditions put forward by Gazprom.

For example, Gazprom undertakes to create opportunities for renegotiating gas prices if they are different from Western European ones only for customers with long-term contracts (exceeding 4 years) and only for existing customers, not new ones, and prices may only be revised once every two years.

Moreover, unreasonably long periods of time are envisaged for renegotiating contract terms and conditions, thus leaving too much leeway for Gazprom to delay those procedures even longer. The price revision commitment is no longer relevant to Lithuania as Lithuanian companies do not have a single long-term contract with Gazprom, and those flexible conditions would not apply to any short-term contracts.

What is important to Lithuania among the things currently on the table is gas exchange transactions and possibilities to change gas delivery points, which would also be permitted only subject to certain conditions under which customers must bring it up no later than 6 months in advance, have a contract with Gazprom lasting for more than two years and seek to divert large volumes of gas.

What is more, Gazprom would undertake to establish only a limited number of delivery points throughout Europe, only five, thus still maintaining artificial barriers to cross-border gas trade. Also, unreasonably high service fees for gas exchange transactions are to be imposed making that gas uncompetitive.

All those restrictions only mean that no Gazprom’s commitments could actually be practically feasible.  So there would be no real benefit for Lithuanian and other Baltic consumers while Gazprom would still be able to use that in order to boost its reputation. We believe that the Commission should demand that all unreasonable and superfluous restrictions be done away with and that account be taken of the current market essentially functioning based on short-term contracts.  

The Slovak response has been more cautious, with Maroš Stano, spokesperson of the Slovak Economy Ministry, stating to the press:

The Ministry will more closely assess the need to comment on the draft commitments of Gazprom within the given period after they are officially published in the Official Journal of the EU.

The Bulgarian response has also been relatively non-committal. The Energy Minister, Nikolai Pavlov, told reporters on the 27th of April that “there are a lot of ambiguities in the proposed concessions and that Bulgaria, almost fully reliant on Russian gas supplies, may need more time to prepare its response”.

However, Pavlov did offer an opinion on two aspects of the proposals. Firstly, “We want to be able to renegotiate gas prices every year and in the first two years every six months”, and secondly, “What is also raising concerns is that Gazprom had offered access to the Bulgarian market to companies from Hungary, Slovakia and Poland, while there is no reciprocity”.

The first objection has parallels with the Lithuanian objection that the ‘once every two years’ price review was insufficient to ensure competitive prices in relation to European hub prices.

The second objection is interesting, regarding Gazprom’s proposal to allow European energy companies to set their delivery points to either the border of Romania and Bulgaria or the border between Belarus and Lithuania: This would make it possible for European energy companies holding gas supply contracts with Gazprom to request that a portion of their gas supplies be delivered to these markets. In effect, this would allow energy companies in Lithuania and Bulgaria to access Russian gas at ‘European’ prices (subject to a mark-up by the European company that was re-selling the gas).

This could only be beneficial for Bulgaria, and there is nothing to stop Bulgarian energy companies ‘gaining access to energy markets in Hungary, Slovakia and Poland’ by setting up gas-trading subsidiaries in those countries and purchasing gas either under long-term contracts or at trading hubs for sale on those markets.

Overall, it seems that while the most strident challenges to the proposed settlement are from Poland and Lithuania, the proposals have failed to generate an enthusiastic response from the region as a whole.

What is clear, however, is a broader regional opinion that the proposals could only ever be a short-term, stop-gap measure, and that the only way to ensure stable supplies at competitive prices is to invest in new infrastructure (new sources of imports and cross-border interconnections) that both diversify supplies and integrate the countries into a single, liquid, regional market.

Gazprom in the Baltic region

Latvian gas market opened to competition

The management of Latvia’s gas transmission and distribution networks, wholesale imports of gas, and sales to final consumers are currently conducted by one company: Latvijas Gāze.

Gazprom’s shareholding in Latvijas Gāze is 34 percent, along with the EU infrastructure investment fund, Marguerite (29 percent), the E.ON subsidiary, Uniper (18  percent), and Itera Latvia, which is part of the Russian Itera Group (16 percent).

In February 2016, the Latvian parliament, the Saeima, voted to unbundle Latvijas Gāze into two companies: one for managing Latvia’s gas pipeline and storage infrastructure, and one for distributing and selling gas to final consumers. The parliament also approved the implementation of third party access provisions and the right of consumers to choose their own suppliers.

On the 2nd of September 2016, Latvijas Gāze shareholders voted in favour of spinning off gas transmission and gas storage functions to a new company, Conexus Baltic Grid. That ‘unbundling’ is scheduled for completion by the end of 2017.

On the 3rd of April 2017, Latvia’s temporary exemption from the implementation of the EU Third Energy Package expired, and the Latvian gas market was officially opened to competition. Any company registered as a gas trader with Latvia’s national regulator is now able to buy gas wholesale and trade it or sell it to final consumers.

Reports suggest that fifteen companies have already registered as gas supply companies in Latvia, including the Latvian companies Latvijas Gaze, Latvenergo, Enefit, AJ Power Gas, ESK Sistemas, Euro Energo Company, Frenzo, GEG, Latvijas Propana Gaze, Rigas Gaze, Scener, Daugavpils Siltumtikli and WIN Baltic, and two Lithuanian companies, Lietuvos Duju Tiekimas (LDT) and Litgas.

Latvia imports and consumes approximately 1.3 billion cubic metres (bcm) of natural gas per year. Gazprom’s long-term contract with Latvijas Gāze – which has traditionally met the entirety of Latvia’s gas import needs - expires in 2030.

Latvia will have two possible alternatives to purchases from Gazprom: Firstly, imports from Lithuania via the Klaipeda LNG terminal, and secondly, purchases from European companies that have designated the Lithuania-Belarus border as the delivery point for supplies from Gazprom, and decided to re-sell those supplies onto the Baltic regional market.

The second option will be possible if Gazprom’s proposals in response to the EU antimonopoly investigation are accepted and take effect.

Latvia is the last of the three Baltic states to liberalise its natural gas market. In Lithuania, Gazprom’s gas supply contract with LDT (formerly Lietuvos Dujos) expired at the end of 2015, although some unused take-or-pay volumes were rolled over into 2016. Since then, Lithuanian gas importers have purchased gas either in the form of LNG or through Gazprom’s Baltic gas auction.

In Estonia, Eesti Gaas imports gas from Gazprom under a long-term contract that expires at the end of 2018. From that date onwards, it is expected that Estonia will diversify its imports with supplies from the Lithuanian LNG terminal delivered via Latvia.

Latvijas Gāze, with its previous control over Latvia’s gas market, Gazprom shareholding, and strategic location between Estonia and Lithuania, was seen as something of a ‘stumbling block’ for Baltic regional gas market development. The liberalisation of the Latvian gas market there represents a step forward in the development of the Baltic gas market.

Nord Stream

EU Commissioners write to Danish and Swedish governments to confirm stance on Nord Stream II

On the 28th of March, the EU Commissioner for Energy Union, Maroš Šefčovič, and the EU Commissioner for Energy and Climate, Miguel Arias Cañete, sent a letter to the governments of Denmark and Sweden, outlining the position of the European Commission on the Nord Stream 2 pipeline. Commenting on the letter at a press briefing on the 31st of March, European Commission spokesperson, Alexander Winterstein, stated that “we don’t like it politically”, but would not comment on the commercial aspects of the project, citing an unwillingness to speculate about a pipeline ‘that does not exist’.

While the letter has not been made public, reports suggest that the European Commission opposition to the project is based on the fact that the pipeline does not diversify the sources of EU gas imports, and would further strengthen Gazprom’s already strong position on the EU gas market, particularly in Central Europe.

A crucial aspect of the discussion relates to the legal status of the offshore section of the pipeline. Should EU gas market legislation apply to offshore, as well as onshore pipelines? Should this perhaps apply only in the territorial waters of states (i.e. up to 12 nautical miles from the coast), or also in the exclusive economic zones (EEZs) of states (which extend up to 200 nautical miles from the coast)? The extent of territorial waters and EEZs are set by the UN Convention on the Law of the Sea (UNCLOS).

The letter did not appear to clarify this issue. Rather, it seemed to confirm that the status of the offshore section of the pipeline was unclear, and that an answer needed to be found. Part of the letter was quoted by Reuters as follows:

It is our view that a specific legal regime would need to be established for the offshore section, and that such specific legal regime should include some fundamental principles stemming from EU energy law… It cannot be built or operated ... in a legal void.

Two days later, on the 30th of March, a letter signed by 65 Members of the European Parliament (MEPs) was addressed to the President of the European Council, Donald Tusk, and the President of the European Commission, Jean-Claude Juncker, expressing strong opposition to the Nord Stream 2 project[3].

On the same day, the Nord Stream 2 AG project company issued its response to the Šefčovič-Cañete letter[4]:

We find it important that the European Commission confirmed that “it is the responsibility and competence of the Member States to authorise or certify individual pipeline projects.”

We also acknowledge that the European Commission confirmed yesterday, via a spokesperson, that the provisions of the 3rd internal energy market package are not applicable to offshore pipelines such as Nord Stream 2. This confirms an earlier opinion of the European Commission’s legal service, which came to the same conclusion.

As far as the regulatory framework is concerned, our main points of reference are the competent authorities in the countries with jurisdiction over the pipeline.

We also strongly disagree with the view expressed in the letter that Nord Stream 2 is not in line with the Energy Union objectives: In the very first sentence of the Energy Union strategy, these objectives are identified as (1) secure, (2) sustainable, and (3) affordable/competitive energy. Nord Stream 2 directly contributes to all three key objectives.

The EU cannot pursue all three objectives simultaneously without sufficient supply of natural gas by import pipelines.

The European Commission will now canvass the opinions of EU member states on the matter, and try to clarify whether EU gas market legislation (includes provisions regarding the necessity of third party access and prohibition of direct, majority control over pipeline infrastructure by gas-producing companies) does indeed apply to offshore gas pipelines.

It is worth remembering that the offshore section of Nord Stream I is operating without any mandatory third party access, and Gazprom is a 51 percent (majority) shareholder in the pipeline. If EU gas market legislation is applied to Nord Stream II, it should also be applied to Nord Stream I. Conversely, if EU gas market legislation is not applied to Nord Stream I, then surely they cannot apply to Nord Stream II?

Even if EU gas market legislation is not applied to the offshore sections of Nord Stream II, such legislation will still apply to the onshore sections of Nord Stream II, such as the proposed EUGAL pipeline, which could face the same challenges as the OPAL pipeline (see below).

The proposed 51 bcm per year EUGAL pipeline could deliver Nord Stream II gas from the Baltic Sea to the German-Czech border. The project was proposed by Gascade, a legally-separate subsidiary of the W&G parity joint venture between Gazprom and Wintershall. Gascade owns and operates pipelines in Germany, in accordance with the ‘legal unbundling’ option offered by the 3rd Gas Directive, which was chosen by the German government as a means of implementing EU gas market legislative provisions on unbundling and market liberalisation.

Nord Stream II project takes significant step forward with financing deal involving five European energy companies

On the 24th of April, Gazprom announced that project financing agreements for Nord Stream 2 project had been signed with ENGIE (formerly Gaz de France), the Austrian OMV, Shell, Uniper (a subsidiary of the German E.ON) and Wintershall. According to Gazprom, each of the five European companies will provide a loan of €950m to the project company, Nord Stream 2 AG. Together, these loans will cover 50 percent of the estimated €9.5bn cost of the project.

Gazprom is the sole shareholder in Nord Stream 2 AG, and will be responsible for 50 percent of the project funding. According to Gazprom, construction will begin in 2018 and be completed by the end of 2019.

In December 2015, the Nord Stream 2 AG consortium sent a request to the Polish anti-monopoly watchdog, the UOKiK (Urząd Ochrony Konkurencji I Konsumentów), for its approval of the project in relation to its effect on the Polish gas market. Although the Nord Stream II pipeline will not pass through Polish territory, the UOKiK must give its approval for the formal transfer of shares in the Nord Stream II project company to its consortium members (Shell, Uniper [EON], Wintershall, OMV and Engie), on the basis that these consortium members own assets in Poland, and that their actions could have implications for the competitiveness of Poland’s domestic market.

On the 22nd of July, the UOKiK announced its objection to the project. In particular, the UOKiK argued that the concentration of gas deliveries via a single route would lead to a restriction of competition, given Gazprom’s already-dominant position in the supply of natural gas to Poland. Then, on the 12th of August, Nord Stream 2 AG announced that it was withdrawing its request to transfer shares in the JV to Gazprom’s foreign partners. Finally, on the 9th of November, the Gazprom Board of Directors took a unanimous decision to terminate the Nord Stream 2 shareholder agreement.

The financing package announced in April is designed to overcome the fact that the five European energy companies are not formal members of the Nord Stream 2 AG consortium, and that their financial contributions will therefore take the form of loans to, rather than investment in, Nord Stream 2 AG.

Nord Stream 2 AG signs pipe-laying deal with Allseas

In early December, Gazprom announced that the Nord Stream 2 AG consortium (in which Gazprom is now the sole shareholder) had signed a letter of intent with Allseas for the laying of the first line of Nord Stream 2, with the option of laying a second line.

On the 22nd of February, Gazprom announced that it had awarded the tender for laying both lines of the Nord Stream 2 pipeline in the Baltic Sea to Allseas.

Finally, on the 6th of April, Nord Stream 2 AG signed a contract with formal, pipe-laying contract with Allseas. This confirmed that Allseas will lay the offshore pipes in 2018 and 2019, using three pipelaying vessels: Pioneering Spirit, Solitaire and Audacia.

Lithuania joins Poland in opposition to EU-Gazprom agreement over OPAL pipeline

In last month’s edition of the Gazprom Monitor, we discussed Poland’s opposition to the agreement between Gazprom and the European Commission over the usage of the OPAL pipeline in Germany.

On the 28th of October 2016, the European Commission approved new rules for usage of the OPAL pipeline, 50 percent of the capacity of the pipeline will be exempt from EU rules on third party access, while 20 percent of the pipeline’s capacity must be kept available in case of demand, as ‘firm’ capacity for competitors. Regarding the remaining 30 percent of the pipeline’s capacity, Gazprom can bid for that capacity but only at the ‘base price’. Therefore, if a competitor wishes to attain that capacity, they may outbid Gazprom. But if there is no competition, then Gazprom may utilise that capacity.

On the 4th of December, PGNiG’s German subsidiary, PGNiG Supply & Trading, filed a suit at the European Court of Justice (ECJ), challenging the agreement. On the 16th of December, the Polish government also filed a complaint at the ECJ. Then, on the 23rd of December, an ECJ tribunal suspended the European Commission’s ruling from the 28th of October.

Poland’s opposition to the agreement was reiterated at a meeting between the Polish Foreign Minister, Witold Waszczykowski and his Ukrainian counterpart, Pavlo Klimkin, on the 15th of March.

On the 1st of March, the Ukrainian Naftogaz applied to intervene in the PGNiG Supply & Trading case, and on the 27th of March, Naftogaz filed its own suit at the General Court of the ECJ, in opposition to the European Commission–Gazprom agreement of the 28th of October 2016.

On the 6th of April, reports emerged that Lithuania had joined the Polish government suit of the 16th of December. Those reports were based on an announcement made by the Lithuanian Energy Minister, Aurelija Vernickaite, who claimed that the Commission ruling “increases energy reliance on Gazprom… Moreover, this might entail negative consequences for Ukraine, since it will reduce gas transit through that country”.

The case is a litmus test for the implementation of EU gas market legislation. We will continue to monitor the case, and report on its progress.

Southern Corridor

Gazprom claims it is ready to begin construction of first offshore line of Turkish Stream pipeline ‘within days’

During April, reports suggested that Gazprom had set up an office in Istanbul to coordinate the Turkish Stream project. On the 27th of April, Russian media quoted the Gazprom CEO, Alexei Miller:

In the second half of this year, we will start the laying of the gas pipeline and we plan to complete the construction of two lines of the Turkish Stream by the end of 2019.

Then, on the 4th of May, Miller met with the Russian President, Vladimir Putin. A partial transcript of that meeting was published on the website of the Russian President. In that meeting, Miller told President Putin:

Our supplies to the European market have increased 15 percent since the start of 2017, compared to the results for the same period last year. In absolute terms, this is 8.6 billion cubic metres more than last year.

This increase in demand confirms our plans to carry out new big gas transportation projects, in particular, the Turkish Stream project. We have already fully completed the preparatory and mobilisation work, and I can tell you that we are ready to start laying the marine section of the Turkish Stream pipeline within the next few days.

To which President Putin replied:

Very good. We discussed this project with our Turkish colleagues yesterday. I am sure that our Turkish colleagues will offer effective support.

You need to begin this work and we will see how the project develops. Go ahead.

The following day, reports appeared in the media that President Putin had ordered Gazprom to begin laying the offshore section of the Turkish Stream pipeline.

We will monitor developments closely in the coming weeks, to find out if construction does, in fact, begin.

If the Turkish Stream project is completed, even if only in the form of one, 15.75 billion cubic metres (bcm) capacity pipeline, it will have substantial implications for gas transit in the region. Article 11(1) of the Russia-Turkey Intergovernmental Agreement states[5]:

The parties proceed from the point that gas that is delivered from the Russian Federation to the Republic of Turkey on the border of the Republic of Turkey with the Republic of Bulgaria, will, from the date of commissioning of the offshore first line, be delivered via the first offshore line.

Given that gas delivered from Russia to Turkey via Bulgaria also transits Ukraine, it follows that the shift in deliveries from Bulgarian transit to the first line of Turkish Stream will entail a reduction in gas transit via Ukraine.

In 2016, Gazprom delivered 11.5 bcm to Turkey via Bulgaria. This is an increase from 11.2 bcm in 2015, but a decrease from 12.7 bcm in 2014. In 2016, Russian gas transit via Ukraine was 77.8 bcm, up from 63.0 bcm in 2015 and 58.4 bcm in 2014. Therefore, a reduction in gas transit via Ukraine of 11-13 bcm would be equivalent to a reduction of 14-22 percent.

If just one line of Turkish Stream and two lines of Nord Stream II are constructed, and EUGAL is also built to bring Nord Stream II gas down from the Baltic coast to the Baumgarten gas hub, then gas transit via Ukraine could be reduced to a rather small volume, serving only Poland, Hungary, Moldova, Romania, and Bulgaria.

In 2016, gas transit via Ukraine provided around 10 bcm to Poland and Hungary via the Drozdowicze and Beregdaróc border crossings with Ukraine, and 6.5 bcm to Romania, Bulgaria, and Greece via the Isaccea border crossing on the Ukraine-Romania border.

Nord Stream II would replace volumes delivered via Ukraine and Slovakia to Baumgarten. Although Slovakia currently receives Russian gas via Ukraine, the Slovak gas transmission system has also been used for ‘reverse flow’ West to East deliveries from Central Europe to Ukraine. It follows that Slovakia could also receive gas supplies from a Western direction.

Gazprom and Ukraine/Belarus

Antimonopoly Committee of Ukraine requests seizure of Gazprom assets in Ukraine over unpaid fine

In January 2016, the Anti-Monopoly Committee of Ukraine (AMCU) imposed a fine of 86 billion Hryvnia ($3.4bn) on Gazprom, with the claim that Gazprom had abused its monopoly position in relation to gas transit via Ukraine and, in doing so, had breached the terms of its ‘ship-or-pay’ contract with UkrTransGaz, the operator of the Ukrainian gas pipeline system.

The claim is likely based on the fact that Gazprom is shipping less gas via Ukraine than it promised in its contract with UkrTransGaz, and has instead re-routed gas deliveries via Nord Stream. Gazprom’s first appeal was dismissed by the Economic Court in Kyiv on the 18th of May. The Supreme Economic Court of Ukraine ruled against Gazprom on the 13th of July, and Gazprom’s appeal at the Supreme Economic Court was dismissed on the 13th of September.

At the beginning of October, it was reported that the AMCU is also seeking additional penalties amounting to an additional 86 billion Hryvnia ($3.4bn) for the non-payment of that fine, following Gazprom’s unsuccessful appeal in September.

Finally, on the 5th of December, the Economic Court in Kyiv ruled in favour of the Anti-Monopoly Committee of Ukraine (AMCU) in its bid to enforce the recovery of a fine it had first imposed on Gazprom almost one year earlier. In March, Gazprom appealed again, claiming that it could not have abused its monopoly position because it does not conduct business in Ukraine – It delivers gas to the Russia-Ukraine border, and that gas is delivered onwards by UkrTransGaz.

However, in April, the Head of the Antimonopoly Committee of Ukraine, Yurii Tertentyev, sent a written request to the Ukrainian Ministry of Justice (Department of State Executive Service - Департамент державноі виконавчої служби Міністерства Юстиції) to request that they “seize the property and assets of Gazprom in Ukraine”, given Gazprom’s failure to pay the fine levied by AMCU and confirmed by the Economic Court in Kyiv.  Tertentyev confirmed the letter by posting photographs of it on his Facebook page. The response of the Ukrainian Ministry of Justice has not been confirmed.

If the AMCU and Ministry of Justice do try to enforce the fine by seizing Gazprom’s assets in Ukraine, it is likely to severely escalate tensions in an already-fractious relationship.

Expected arbitration ruling on Gazprom-Naftogaz dispute pushed back to May-June

In late April, Gazprom and Naftogaz anxiously awaited the outcome of their arbitration case, which concerns the price at which Gazprom sold gas to Naftogaz, Naftogaz’s accumulation (according to Gazprom) of debts through unpaid or partially-paid bills, and the transit tariff charged by the Naftogaz subsidiary, UkrTransGaz, to Gazprom for the transit of Russian gas across Ukrainian territory.

However, at the end of the month no ruling was announced. Sources initially reported that the results will be issued by the end of May. However, Gazprom has stated that it expects a ruling on the 30th of June.

Belarus pays off gas debts to Gazprom and signs protocol on gas prices in 2018-19

On the 12th of April, Gazprom announced that “the Belarusian party fully paid off its overdue debt of USD 726.2 million for the Russian gas supplied by Gazprom in 2016–2017”. That same day, the Gazprom CEO, Alexei Miller, and the Deputy Prime Minister of the Republic of Belarus, Vladimir Semashko, signed a protocol on the price of Russian gas supplied to Belarus in 2018-19.

As in 2016-17, Belarus will continue to receive Russian gas based on the price paid by Russian gas consumers in the Yamal-Nenets Autonomous Area (a major gas-producing region in Russia – Effectively the ‘wellhead’), plus transportation costs.

Gazprom in Asia

Gazprom announces that 650km of the Power of Siberia pipeline has been built

In April, Gazprom issued an update on its progress with the Power of Siberia pipeline, which is being built to deliver Russian gas from the Eastern Siberian fields of Chayanda and Kovykta to North-East China, crossing the border at the Amur River, close to the Russian city of Blagoveshchensk.

According to an announcement by Gazprom’s press service on the 12th of April, over 650km (400 miles) of pipeline have been fully laid. Given that Gazprom claimed that around 450km had been laid by the end of 2016, this would suggest that Gazprom laid 200km of the pipeline in Q1 2017. At this rate, a further 600km could be laid by the end of 2017.

The distance from the Chayanda gas field to Blagoveshchensk is approximately 2,200km. The additional connection between Chayanda and Kovykta is around 800km. Therefore, if Gazprom continues to construct the pipeline at a rate of around 800km per year, it will be on target to lay the pipeline from Chayanda to Blagoveshchensk by the end of 2019.

Gazprom signs deal with Uzbekneftegaz to import gas from Uzbekistan

On the 5th of April, Gazprom announced that it had signed a contract with Uzbekneftegaz for the import of 4 bcm of natural gas from Uzbekistan every year for a period of five years, starting in 2018. In 2016, Gazprom purchased 6.2 bcm from Uzbekistan.

Analysts suggest that, while Gazprom does not need this gas for its own purposes, the contract with Uzbekneftegaz will prevent those volumes being offered to China, as competition for Russian gas.

At a regional level, Gazprom could supply Uzbek gas to Kyrgyzstan. In 2014, Gazprom purchased a 100 percent stake in the Kyrgzgaz subsidiary, KyrgyzgazProm (now Gazprom Kyrgyzstan). According to Gazprom, “Gazprom Kyrgyzstan has exclusive rights to import natural gas to the Kyrgyz Republic and owns the national gas transmission and distribution systems”.

Uzbekistan and Kyrgyzstan are already connected by Soviet-era pipelines, and gas deliveries from Turkmenistan to China follow a similar route along a new pipeline. The shipping distance from Uzbekistan to Kyrgyzstan is much shorter than from Russia to Kyrgyzstan, and Uzbek gas exports would follow a similar West-East path if they were offered to China.


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