Naftogaz chief warns of potential loss of Russian gas transit volumes via Ukraine

The head of Ukraine's state-owned Naftogaz Ukrayiny has warned that disruption to operations at Ukrainian compressor stations in areas occupied by Moscow could lead to the loss of one third of Russian gas transit volumes to Europe.

Writing on Twitter April 23, Naftogaz CEO Yuriy Vitrenko also called for payments for Russian gas by European buyers to be paid into escrow accounts.

"We estimate that one third of the gas volume exported from Russia to the EU through Ukraine will be lost if the occupation forces do not stop disrupting the operation of our stations in recently occupied territories," Vitrenko said.

Shipments of Russian gas via the Ukrainian network have continued unaffected since Moscow's invasion on Feb. 24.

However, state-owned grid operator GTSOU has warned that Russian action at a key gas compressor station in the Luhansk region of eastern Ukraine was putting Russian gas transit to Europe at risk.

Almost a third of Russia's Ukrainian gas transit passes through the Novopskov compressor station on the Soyuz pipeline, which enters Ukraine at the Sokhranivka entry point on the border with Russia.

GTSOU has recorded changes in the operation of communication equipment and technological practices that, it said, could result in the loss of operational control over the compressor station equipment.

GTSOU has urged Russia to refrain from further interference in the operations of the station.

Escrow accounts

Vitrenko on April 23 again called on a full EU embargo on Russian energy imports in response to Moscow's invasion of Ukraine on Feb. 24.

However, he said he understood German concerns over the impact of such a measure.

German officials and financial institutions have warned that banning Russian gas imports in particular would lead to a recession in Germany.

"We are trying to be constructive and reasonable," Vitrenko said. "One solution could be to buy gas from Russia, but freeze the payment for some time and transfer it to escrow accounts outside Russia," he said.

"Another option would be to impose additional tariffs on imported gas to make it even more expensive," he said.

"This would force companies in Germany to innovate. Why aren't German companies taking this path of innovation and instead relying on cheap Russian gas? Germany has the potential, after all. Germany's dependence on Russian gas is exaggerated," he said.

"German corporate leaders are giving the impression that German innovation competitiveness is based solely on cheap Russian gas. This is an insult to Germany's engineering skills. After all, Germany was a successful country before cheap Russian gas was invented."

Transit volumes

Russia's Gazprom, meanwhile, has repeatedly said it continued to supply Russian gas for transit through Ukraine in regular mode in accordance with the requests of European consumers.

Deliveries via Ukraine have been as high as 110 million cu m/d in recent weeks, in line with Gazprom's contractual obligations under its five-year transit deal with Ukraine signed in December 2019.

Under those transit arrangements, Gazprom agreed to transit 65 Bcm of gas via Ukraine in 2020 and 40 Bcm/year in the period 2021-2024, well down on a recent transit peak of 94 Bcm in 2017.

Russian flows via Ukraine ran close to or at contracted levels during March after the invasion triggered sharp spot price increases in Europe, making Gazprom's contracted gas more competitive versus gas at the European hubs.

Since April 8, however, deliveries via Ukraine have been much lower after European spot prices fell well below Eur100/MWh, making hub gas more competitive versus Russian pipeline gas supplied under long-term contracts.

The TTF day-ahead contract was priced at Eur92.03/MWh on April 22, according to the latest Platts assessment by S&P Global Commodity Insights, having hit a record high of Eur212/MWh on March 7.

Gazprom has maintained that its focus is on meeting its obligations to long-term contract holders.

"Gazprom continues to supply gas according to consumer requests in full compliance with contractual obligations," Gazprom said in a mid-April statement.

In 2021, Gazprom delivered 41.6 Bcm of gas via Ukraine, having topped up its contractual obligations with some shorter-term bookings.