From Russia with love: Brussels and Moscow close to an agreement on Ukraine’s gas supplies

Maroš Šefčovič, Vice-President of the EC in charge of Energy Union at the Western Balkans Summit last August (EC Audiovisual Services, 27/08/2015)

Following a few months of mere “meditation”, the European Commission and Russia held a bilateral meeting in Vienna last week where they finally made progress on Ukraine gas supplies and energy security. Russia was represented by the Minister for Energy, Mr. Alexander Novak and the CEO of Gazprom, Mr. Alexej Miller. The EU was represented by Maroš Šefčovič, Vice-President of the EC in charge of Energy Union.

The meeting took place “in a constructive atmosphere” and focused on the actions needed to ensure stable gas supplies to Ukraine and via Ukraine to the EU during winter, as it was underlined by the Commission in an official statement. “The meeting was also the occasion to exchange views on matters regarding the EU-Russia energy relations such as energy infrastructure”, the Commission added.

A step forward

The meeting, which took place with the initiative of the European Commission, undeniably represented a great step forward in the EU-Russia issue, and contributed to restart discussion over the implementation of Russian gas transmission projects in Europe. Last week’s EU-Russia talks also laid the foundations for a next round of trilateral gas negotiations between the European Commission, the Russian Federation and Ukraine.

However, the Russian minister for energy indeed told reporters that a deal had been reached. “In our opinion, we managed to reach an agreement on a winter package,” he said after the meeting. He also stressed that the fate of the agreement now depends on Ukraine. “If they agree it, we could meet next week”, he said.

From Russia with love

Mr. Novak did not stop there and gave more important news to the reporters who gathered in Vienna for the event, news that has been awaited for more a few months. Novak was quoted by Ukrainian news agency Interfax saying that Moscow, which has been quite reluctant so far, was ready for a “price discount for the winter period to set the price at the level of neighbouring countries like Poland”. He did not specify the discount though.

According to Reuters, Russia believes that the EU is now ready to provide $500 million for Ukraine to resume gas purchases. The Russian side declared that the EU was offering that amount of money to Kiev specifically for purchasing gas from Gazprom. Gazprom CEO Alexei Miller soon commented that such agreement would give Ukraine “the opportunity to pump another 2 billion cubic meters of gas” into underground storage.

Russia-Ukraine crisis

Year-end discussion over gas and energy supplies prices has always been a familiar question between Russia and Ukraine, but clearly the ties collapsed altogether last year. Relations between the two countries dramatically deteriorated following the conflict between Ukrainian government troops and separatists in Ukraine’s east, which horribly resulted in thousands of casualties.

Kremlin has always denied all charges that its troops are directly supporting the separatists and has always been critic over the Western sanctions that have hit its economy.

A better scenario

The whole Russia-Ukraine situation though seems to be improving on many fronts now. German Foreign Minister Frank-Walter Steinmeier met with his Russian, Ukrainian and French counterparts in Berlin last Saturday and stated that “significant progress” had been made towards a resolution of the conflict between Kiev and Moscow.

The new ceasefire that came into effect on September 1, which both Ukrainian and rebel forces are broadly respecting according to OSCE, is showing some more optimism over the question. Also positive statements by Russian President Vladimir Putin, who said he welcomed that fighting had stopped in eastern Ukraine, represent another big step ahead.

European needs

Both Russian gas supplies and Ukrainian pipelines are fundamental for the Old Continent. The EU gets around a third of its natural gas from Russia, and up to the 50 percent of that flows through Ukraine. The EU estimates that it stocks around 14.9 billion cubic metres of gas in underground storage as of September 11, while it would need around 19 in storage to be warm for winter by mid-October.

However, there’s a slight concern that Ukraine itself doesn’t have alternative gas provision to get through winter and that it would consequently need to buy more for Russia in any case. With this scenario, last week’s talks become even more crucial.

The importance of securing Ukraine’s winter gas supplies has been also highlighted by European Commission’s President Jean-Claude Juncker during his State of the European Union speech last Wednesday September at the European Parliament.