Gazprom threatens to halt Russian gas exports to Europe via Ukraine

Russian state run gas giant Gazprom has threatened to halt its remaining shipments of natural gas to Europe via Ukraine unless the latter drops its litigation efforts against Russia in international courts.

In a hostile-worded video statement shared on Gazprom’s social media channel on Telegram, executive chairman Alexei Miller warned the company would have to stop its piped gas shipments via Ukraine under its transit contract with Naftogaz Ukrainy as soon as Russia’s President Vladimir Putin approves sanctions against Ukraine’s state-owned gas producer and importer.

During the statement, Miller was seen wearing a button with the letter Z, a sign that has become a wide-spread pro-Russian symbol of the war in Ukraine since Russia’s invasion in February last year.

Miller said Russia is readying sanctions to retaliate against Ukrainian efforts to seek multibillion dollar compensations in international courts for lost assets in Crimea and for Gazprom’s failure in honouring a ship-or-pay clause in the transit contract between the two companies.

At the end of June, Naftogaz executive chairman Oleksiy Chernyshov said his company had made some progress in seeking international enforcement of an earlier arbitration award against Russia.

An April ruling by the Permanent Court of Arbitration in the Netherlands stated that Russia is to compensate Naftogaz for Russia’s seizure of its offshore and onshore oil and gas assets on the Crimea Peninsula, which the country annexed in 2014.

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The court established compensation at $5 billion plus accrued interest — a ruling the Ukrainian company is now trying to have enforced.

In June, Naftogaz filed a motion with the US District Court of Columbia, seeking to have the compensation upheld and enforced in countries that host Russian state assets, under UNCITRAL arbitration rules.

The company does not intend to retract the motion in an effort to encourage other companies in Ukraine to follow its steps and seek compensation from Russia and its corporations, Chernyshov told Ukrainian broadcaster ICTV.

Ship-or-pay clause

Naftogaz is also understood to be moving forward in international arbitration to obtain compensation for Gazprom’s refusal to honour a ship-or-pay clause in its transit contract.

The clause stipulates the Russian giant must ensure minimum gas supplies of just over 109 million cubic metres per day for the duration of the contract until the end of 2024, and pay in full for such supplies even if the actual volume of deliveries is less than the agreed threshold.

Gazprom has been shipping less that contracted minimum volume for over a year, with transit supplies ranging between 35 MMcmd and 42 MMcmd this year.

In the statement, Miller has argued that it is “senseless” for Gazprom to take part in international legal cases in Europe and the US because of “hostile attitude towards Russia” in those countries, citing the sanctions introduced since last year.

Speaking of the Naftogaz’ motion in the US, Miller said: “If such dishonest actions of Naftogaz continue, it cannot be ruled out that this could lead to the imposition of sanctions by the Russian Federation, and then any relations between Russian companies and Naftogaz will be simply impossible.”

Miller also blamed Naftogaz for Gazprom’s failure to honour the ship-or-pay clause, saying that the Ukrainian company has consistently refused Gazprom’s gas transit nominations at the Sokhranivka border point in the Luhansk region in eastern Ukraine.

Last May, Naftogaz declared force majeure on its ability to accept Russian gas supplies at Sokhranivka after the facility was occupied by the Russian military.

Naftogaz offered Gazprom to re-route gas transit supplies via remaining transit routes under Ukraine’s control that are capable of taking up to 244 MMcmd of Russian gas for transit to Europe. The Russian supplier is understood to have ignored that option.

Russian gas distribution

Current Russian gas flows via Ukraine stand at about 42 MMcmd and are pumped to Ukraine’s neighbour, Moldova, where just over 5.2 MMcmd of the total flow are delivered to the pro-Russian part of the country, Transnistria.

The remaining volumes flow, upon exiting Ukraine, to Slovakia and onwards to Austria and Italy via the Soyuz pipeline.

Italian Environment & Energy Security Minister Gilberto Pichetto Fratin told newspaper La Stampa at the end of June that Italy is now taking just between 3 MMcmd and 4 MMcmd of Russian piped gas, or about one tenth of the volume before the war.

A partner at Moscow-based energy consultancy RusEnergy, Mikhail Krutikhin, said that Russia may halt piped gas supplies at any time, adding that the one factor preventing such a move is a commitment to deliver gas to pro-Russian Transnistria.

The region, which is not recognised internationally, hosts a Russian military contigent of about 2000 soldiers.