Ukraine’s state controlled gas producer and importer Naftogaz Ukrainy has opened new arbitration proceedings against Gazprom in an apparent attempt to pressure the Russian gas giant to restore transit supplies to Europe to contractual levels ahead of the critical winter period.
The case, filed with the International Court of Arbitration in Paris, alleges Gazprom has failed to make payments within the terms of the five-year gas transit agreement between the two companies and has done so despite Naftogaz having met its own contractual obligations to enable natural gas transportation through the embattled country.
The five-year agreement was signed by both companies in December 2019.
Take-or-pay
Naftogaz executive chairman Yury Vitrenko said in a social network post that the 2019 transit agreement contains a so called “take-or-pay” clause that obliges Gazprom to supply the minimum agreed volume of gas or pay compensation if volumes fall below the minimum.
“Naftogaz demands that Gazprom pay for the rendered service of organising natural gas transportation through the territory of Ukraine. Funds have not been paid by Gazprom, neither on time nor in full,” the company said in a separate statement.
Russian authorities refused to provide an assessment of the new appeal filed in Paris.
“There could be a lot of unpredictable things from both our Western colleagues and the executives of Ukrainian gas industry,” Russian Presidential spokesman Dmitry Peskov was quoted as saying by Reuters during a conference call on the issue on Monday.
“It is even frightful to suppose which decisions could be taken on this by Kyiv in future,” he added.
Energy infrastructure hit
The arbitration claim coincided with the latest reports from the conflict suggesting that Ukrainian forces have recaptured most of the Russian-occupied part of the Kharkiv region in the north of the country as the result of a seven-day offensive.
Reports suggested the surprise attack in the north has led to Russian troops retreating from towns and cities occupied after the invasion of Ukraine in February. There are also growing expectations about a possible Ukrainian counter-offensive in the south of the country.
The reports suggested that Russia has responded with missile attacks on an energy and heating infrastructure in Kharkiv and neighbouring regions, leading to wide scale blackouts in north and northeast Ukraine on Sunday that partially extended into Monday.
City authorities in Kharkiv said they are preparing to move families and people from districts without power and water supplies to hostels, possibly for the whole winter.
Power generating installations in Ukraine are seen as a possible target for Russian attacks ahead of the winter period as these facilities provide centralised heat and energy supply to residential blocks hosting millions of people.
Despite targeting some power installations in Ukraine, Russian gas transit flows to Europe via Ukraine continue at a rate of about 42 million cubic metres per day, according to data from Ukraine’s transmission authority Operator GTS Ukrainy.
Since the end of May, Naftogaz and Operator GTS have repeatedly asked Gazprom to restore this rate to the minimum level of 110 MMcmd as specified in their 2019 contract.
At one point, in May, Operator GTS declared force majeure on its ability to continue the transportation of gas via a border entry compressor pumping station in the Luhansk region after it had been taken over by Russian troops, with the operator’s staff removed from the facility.
Although Operator GTS stated that the other entry point in the Sumy region, which remains in Ukrainian control, is technically capable of transiting 244 MMcmd of Russian gas, Gazprom reduced its minimum gas transit supply to the current level.
The Kremlin has threatened to put a complete stop to all gas deliveries to Europe if threatened price caps on Russian gas are introduced to help stabilise the European energy market.
The measures are intended to curb the bumper revenues that Gazprom is understood to have been receiving in recent months despite lower shipments, for the simple reason that prices are at record levels.
Despite such threats, the European gas spot market has seen a sustained sell-off for contracts providing for gas deliveries this winter, due to abundant supply levels.
Prices for October and November contracts at the Europe’s largest gas hub, TTF in the Netherlands, fell by one third to trade at €194 and €204 per megawatt hour ($2000 and $2100 per thousand cubic metres) since the highs, last seen on 5 September.
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