OREANDA-NEWS. Plans for trilateral talks between Ukraine, Russia and the EU over gas transit show that Ukraine is keen to avoid disruption and that it is unlikely to immediately impose sanctions if they would hamper gas flows to the rest of Europe, Fitch Ratings says. Even if Ukraine did impose sanctions that interrupted Russian gas exports via its pipelines, the impact on its own energy security could be greater than on the rest of Europe.

A law approved by the Ukrainian parliament on Thursday enables the country to impose sanctions against foreign companies and individuals. One potential option is to ban Gazprom from transporting gas through Ukraine's pipelines, and instead require European companies to buy gas from Gazprom at Ukraine's eastern border.

This would require revised contracts between Gazprom, Naftogaz and buyers, which would take time to negotiate. Talks are reportedly slated to take place at the start of September. Ukraine is unlikely to ban Gazprom without attempting to agree these new deals, but the law creates the threat of sanctions if these efforts are unsuccessful.

Russian gas is continuing to flow through the pipeline, but Russia cut off gas sales to Ukraine in June. Ukraine is therefore reliant on its own production, storage withdrawals and gas sent back to it from Poland and Hungary; it has announced tough restrictions that will limit consumption by industrial and public sector consumers as well as heating utilities. It is also hoping to be able to import gas from Slovakia before the winter, after testing on a connecting pipeline started on Thursday. However, if disruption to flows through the Ukrainian pipeline led to even a small shortage of gas west of Ukraine then these reverse flows could be cut off completely. A Ukrainian ban could also prompt the EU to support Gazprom's Southern Corridor gas transmission system.

In contrast, European reserves of gas have risen to six-year seasonal highs due to worries over potential disruption. There is the potential for more Russian gas to be routed via the Nord Stream pipeline, although this would require the resolution of issues with a connecting pipeline in Germany. In the event of disruption to the Ukrainian route, but a continued willingness from Russia to export gas to Europe, Fitch believe reserves and alternative routes and sources would allow uninterrupted supply to European consumers well into the heating season, although possibly not for the whole winter, especially if weather conditions are abnormally cold.