Ukraine, Russia trying to agree on gas

On April 21 in Kharkov Russian president Dmitry Medvedev and Ukrainian president Viktor Yanukovich are expected to declare about a possible adjustment of the gas contract signed by Gazprom and Naftogaz in January 2009. Official spokespersons of the sides prefer not to elaborate on the situation, which gives rise to numerous rumors debated in the Russian and Ukrainian press. Ukraine is allegedly ready to make economic concessions to Russia (this concerns access to Ukrainian final consumers of gas and other economic issues related to the machine-building and nuclear sectors) as well as purely political ones.

However, there unlikely to be really substantial political concessions (e.g. cession of the Crimea to Russia or assigning the status of Ukraine's second state language to Russian); meanwhile, Russia is substantially less interested in minor issues. Thus, gas concessions in favor of Gazprom are more probable. Yet, there is no confidence that another agreement will "last for many years", which politicians in Moscow and Kiev will not fail to declare. So far, only one fundamental thing is clear: Russia in fact needs some seven to ten years to wait until Nord Stream and South Stream bypassing Ukraine start operating at their combined capacity of 55bn and 63bn cu m of gas per year, which is well compared to the volume of Russian gas exports to Europe pumped through the Ukrainian gas transportation system during the economic downturn and a relatively low demand for natural gas. Development of shale gas and LNG projects in the world worsens the situation for the supplier (Russia) and the transit state (Ukraine) further, even if real progress of these projects and their strategic importance are significantly overestimated by interested companies, states and experts. But in any case, objective decline in the EU and Russia's interest in Ukraine's GTS is inevitable. In this case any agreement reached by Medvedev and Yanukovich should be considered in the short-term perspective.

By Stanislav Mitrakhovich, NESF leading expert