Yuiry Vitrenko, head of Ukraine's state-owned Naftogaz, resigns

Yuriy Vitrenko, the head of Ukraine's state-owned Naftogaz Ukrayiny, has resigned and will leave his post Nov. 3, a surprise move with significant implications for the country's gas sector.

In a statement, Naftogaz said Ukraine's Cabinet of Ministers accepted Vitrenko's resignation on Nov. 1.

"Vitrenko continues to hold his position as head of the national company until close of day Nov. 3. More detailed communication on this subject will be forthcoming on Vitrenko's last day of work as Naftogaz CEO," it said.

Vitrenko's surprise resignation comes as Ukraine faces what has been described as the most challenging winter in its history given low gas storage levels and ongoing Russian attacks on energy infrastructure.

Vitrenko had also played a key part in efforts by Naftogaz to prioritize domestic gas production to offset lost output in parts of the country occupied by Russian forces.

Ukraine currently has some 14.5 Bcm of gas in storage, well short of its target of 19 Bcm before the heating season, due to the high cost of gas imports.

European gas prices have been at sustained highs since September 2021 and surged to record highs in late August after sharp Russian gas supply curtailments.

Prices have, however, eased in recent weeks, and Ukraine has been importing additional gas volumes.

Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price on Nov. 1 at Eur115.55/MWh, down from the record high Eur319.98/MWh on Aug. 26.

In comments made in early October, Vitrenko said Ukraine expected further attacks on its energy infrastructure and that the country would have to live with the continued uncertainty.

Gazprom arbitration

Vitrenko was acting energy minister from December 2020 until April 2021 before taking over from former Naftogaz CEO Andriy Kobolev, who was dismissed after Naftogaz suffered heavy financial losses in 2020.

At the time of his appointment, Vitrenko said he would resume legal pressure on Russia's Gazprom having been instrumental in Naftogaz's $2.6 billion arbitration victory against Gazprom in 2018.

In September, Vitrenko said Naftogaz would continue with a new arbitration claim against Gazprom over gas transit payments despite the threat of sanctions raised by the Russian company.

Gazprom said in late September that Moscow could impose sanctions on Naftogaz in retaliation for the arbitration claim that -- if carried out -- would mean a ban on all financial transactions with the Ukrainian company.

Naftogaz said Sept. 9 it had filed a request for a new arbitration case in a bid to force Gazprom to pay in full for gas transit services, but the Russian company refuted all the claims.

Vitrenko said Naftogaz would continue to pursue the claim. "The arbitration will proceed to an award irrespective of Gazprom's participation," he said.

Naftogaz and Gazprom signed in December 2019 a gas transit agreement under ship-or-pay terms, meaning Gazprom is obliged to pay for transit whether it uses it or not.

However, Naftogaz has claimed that since May Gazprom has been flowing less gas than agreed in the contract and paying less than the agreement provides.

Vitrenko said that, under the transit agreement, Gazprom accepted the right of Naftogaz to refer disputes to arbitration.

Sokhranivka force majeure

Central to the dispute is the fact that Ukraine in May declared force majeure on its ability to transit Russian gas entering at Sokhranivka, saying it no longer had operational control of infrastructure in parts of eastern Ukraine.

Gazprom said it would only pay for services rendered despite the ship-or-pay provision in the transit contract.

Vitrenko said Naftogaz had offered Gazprom the option of transferring transit to Sudzha -- the only operational entry for Russian gas into Ukraine at present.

Gazprom is contracted to transit 110 million cu m/d of Russian gas to Europe via Ukraine in 2022 -- or a total of 40 Bcm.

Russian gas flows via Ukraine are now only entering Ukraine at Sudzha at around 42 million cu m/d. Up to 33 million cu m/d Russian gas could flow into Ukraine at Sokhranivka before the force majeure.