Has Ukraine scored an own-goal with its transit fee proposal?

The issue of gas transit through Ukraine remains a crucial commercial and political concern, given the current debate over the future of Nord Stream 2 and the gradual approach of 2019, when the current contract between Gazprom and Naftogaz will expire. In this short note we examine Naftogaz’s latest tactic, which has been to increase the Ukraine transit tariff in the short-term while promising a more competitive fee once its pipeline system has been amortised. We question whether this is the best way for Ukraine to promote the use of its pipeline infrastructure over the long-term, especially given the increasingly competitive nature of the European gas market. We note that Gazprom has adjusted its own marketing strategy to take account of the changing market environment, and we ask whether it might not be logical for Naftogaz to adopt a more commercial, and less political, stance in its transit negotiations if it really wants to reduce the chance of Nord Stream 2 being built.

By: Thierry Bros