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Gazprom warns of further supply cut via Ukraine

Russia’s energy giant Gazprom warned that it could impose sanctions on Ukraine’s state-owned oil and gas company, Naftogaz in retaliation for a recent arbitration claim. European gas prices surged over fears that all Russian gas flows via Ukraine could be halted.

Naftogaz signed a contract with Gazprom in 2019 about the transportation of at least 65 billion cubic metres of gas in 2020, and 40 billion cubic metres annually from 2021 to 2024.

In May, Naftogaz declared force majeure of Russian gas transmission through the GMS Sokhranivka and the border compressor station (CS) Novopskov, located in Russian military-occupied territory, citing that the circumstances make it impossible to operate.

Instead, Naftogaz suggested transferring these volumes through another entry point. According to the Ukrainian side, the transfer of the transit flow would not require any extra costs from the Russian side.

In September, Naftogaz launched a new arbitration procedure against Russia’s gas giant on the grounds of failure to make gas transit payments on time and in full.

In a statement, Gazprom said it categorically rejects all the claims of Naftogaz in the arbitration proceedings initiated in relation to the transit of Russian gas to Europe, highlighting that “services not rendered by the Ukrainian party should not and will not be paid for”.

“Without the proper grounds, Naftogaz of Ukraine has refused to fulfil its transit obligations through Sohranovka GMS and the fact of non-fulfilment of services has been admitted by the Ukrainian company. Naftogaz of Ukraine is perfectly aware that non-fulfilment of obligations on its part means non-payment according to the December 30, 2019 agreement even if Naftogaz of Ukraine announces a force majeure in Ukraine,” the statement said.

Gazprom added that it considers Naftogaz of Ukraine filing an appeal an unfriendly step and a continuation of unprincipled behaviour by the Ukrainian company, emphasising that further attempts by Naftogaz to achieve consideration of the dispute at the International Court of Arbitration could give legitimacy to Moscow to introduce sanctions against Naftogaz of Ukraine and include it on the list of sanctioned entities. This will mean in practice a ban on Gazprom fulfilling obligations to sanctioned entities under concluded deals, including carrying out financial transactions.

Naftogaz CEO Yuriy Vitrenko responded on Twitter to the accusations of Gazprom arguing that the statement is another example of Gazprom’s disregard for the rule of law and its association with the Russian Federation’s war of aggression against Ukraine.

“The fact is that Naftogaz has invoked force majeure in respect of transit through entry point Sokhanovka because it is controlled by Russian armed forces, and instead offered transit through entry point Sudzha at no additional cost. Naftogaz has therefore provided the required services, but Gazprom has refused to make use of the services,” underlined Vitrenko.

The CEO of Naftogaz underlined that Gazprom cannot rely on the force majeure invoked by Naftogaz to escape its payment obligation adding that under the agreement, Gazprom has accepted the right of Naftogaz to refer disputes to arbitration, thus when Naftogaz exercises this right, it is simply a regular exercise of a contractual right and not an “unfriendly act”.

European gas prices surged after the announcement that Russia may cut off supplies via Ukraine.

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