EUROPE A gas agreement between Russia and Ukraine for the coming winter is still unsettled. So far, the odds look slightly less favourable for Russia, Vattenfall’s gas market expert says.

The gas storages in Europe are at a lower level than normal at this time of year, the reason being last winter’s gas price dispute in Ukraine, which resulted in reverse flows from Europe to Ukraine, to compensate for less gas being transported from Russia . This year, facing a new autumn and winter, the gas negotiations between Russia, Ukraine and the EU are slowly starting after the attempt on trilateral talks in June broke down.

Vattenfall’s gas market expert and the Head of EU affairs, Helga Norrby, says she doesn’t expect much to happen in these negotiations for some weeks.
“Russia usually waits for the temperature to fall in order to put pressure on Ukraine.”

An agreement matters for Europe
The Ukraine/Russia negotiations for a gas agreement are a question of balance of weather and finances. If the temperature drops in Ukraine, Russia gets the upper hand. If European sanctions continue to make it financially tough for Russia, Ukraine is favoured. For Europe, a stable agreement between the two countries is important to secure gas transit through Ukraine, otherwise EU members in the east risk gas shortages. However, the dependency on the Ukraine pipeline to Europe has decreased over time, as other ways of sourcing gas have and are being developed. The expansion of the Nordstream pipeline from Russia straight to Germany is one example.

Helga Norrby sees little reason to be alarmed at this stage and she believes the negotiations will succeed eventually.

 “I think that they will find an agreement and my personal expectation is that Ukraine will get a better price than last year, because of the price drop on the market and the squeezed financial situation for Russia,” she says. “If they do fail, however, it will be a cold winter for Ukraine and possibly also other countries in eastern Europe.”

Vattenfall is prepared
Vattenfall has approximately two million gas customers, mainly in Germany and the Netherlands, but Helga Norrby says the company is well prepared for any outcome of the discussions.

“With regards to our own portfolio we have our own storage, flexibility contracts and trading activities in different European markets, short, mid and long term supply agreements and are also looking into LNG (liquid natural gas). This means we are prepared for any result in the Ukraine discussions and there is no risk of gas shortage for our gas plants or gas customers. There may be some effects on the gas prices, but we expect these effects to be limited.”

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