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Alternatives& Analyses: The non-crisis over the Ukrainian transit

Shortly after the New Year Day, Ukrainian Transit made the headlines again. Transit volumes suddenly dropped from their normal levels of 220 mcm/d to below 40 mcm/d.
Why is this a non-crisis?
Part of that was expected as Turk Stream went online and diverted at least 35 mcm. The doomsayers were quick to predict a new crisis and hail Gazprom’s return to strong-arm tactics.
The explanation is far more prosaic.

To start with, regardless of the real volumes transited, the new contract between Gazprom and the Ukrainian TSO has a mandatory ‘ship or pay’ clause, which guarantees Ukraine a minimum level of transit earnings.
The head of the Ukrainian Gas Transmission System Operator, Sergey Makogon, noted: “Although the physical volumes of transit temporarily decreased to 35-45 million cubic meters per day, the GTS operator receives payment in full from calculating 178 million cubic meters per day. The money transfers for the transit, according to the statements by Makogon, have already been paid to the accounts of the TSO operator, as the services are provided on a pre-paid basis.”
Gazprom has set the daily volumes transit order of 178 mcm/d based on the annual 65 bcm.

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According to the contract, additional volumes of Russian gas for transit through Ukraine, above the agreed ones, are paid at a higher tariff”.
The decision to reduce transited volumes has been Gazprom’s sovereign decision. The company is trying to avert a further drop in gas prices at the EU gas exchanges due to gas overstock in the UGS across Europe. It was a result of the uncertainty that preceded the transit contract as everyone was seeking a hedge in the event of failure to reach an agreement. Mild winter has further downsized forecasts for future demand peaks, and the demand for new transfer from Russia has been considerably reduced.
There is an interesting development on the Turk Stream entry into Bulgaria. Since the beginning of the year, 20–25 million cubic meters per day have been delivered across the interconnector between Turkey and Bulgaria -“Strandja 2 / Malkoclar”.  Approximately half of this gas is returned to Turkey through the previous supply point – Strandja 1/ Malkochlar. The gas is used to supply the Western areas of the European part of Turkey.
In the last several days, the volumes delivered via the Turkey-Bulgaria interconnectors increased, allowing transit to Greece and Nord Macedonia of Russian gas to resume.

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