Ukraine seeks new Russia gas deal to avoid disruption to EU supply
ELENA MAZNEVA
MOSCOW (Bloomberg) -- Ukraine needs to negotiate a new natural-gas deal with Russia just as the conflict between the two countries risks escalating again.
A gas-price agreement with Russian exporter OAO Gazprom expires at the end of the month and Ukraine requires fuel to replenish stockpiles before the winter. At the same time, a truce between the government in Kiev and pro-Russian rebels appears to be breaking down after fighting near the eastern city of Donetsk killed more than 20 last week.
Another “bloody clash is very possible in the coming weeks -- as a provocation -- amid talks on extending sanctions against Russia,” said Vasily Kashin at the Center for the Analysis of Strategies and Technologies in Moscow. “That’s a threat for a gas pact.”
Gas has been a key element in Russia’s troubled relationship with Ukraine, which still relies on its larger neighbor for about half of its supply. The issue is also critical to Europe’s energy security as 10% of the region’s gas needs passes through Ukraine’s pipelines.
While there’s a preliminary gas agreement between Russia, Ukraine and Europe, the final outcome depends on Moscow, Alexander Medvedev, Gazprom’s deputy head, said Tuesday.
Europe may face disruption to supply this winter -- similar to 2006 and 2009 -- if Russia and Ukraine can’t reach a deal, said Alexander Paraschiy, a Concorde Capital analyst in Kiev.
Coldest Months
Moscow denied Ukrainian President Petro Poroshenko’s accusation on June 4 of a full scale Russian invasion in eastern Ukraine. The European Union may extend sanctions against Russia by one year “in coming days,” Christian Braun, Luxembourg’s ambassador to the 28-nation bloc, said on Tuesday.
Ukraine, battling to meet international debt obligations, would struggle to pay for gas if Russia raises its prices for the country. Alternative supplies from Europe are unlikely to be able to completely fill the gap, especially given Gazprom’s ability to influence flows within Europe, Paraschiy said.
Gazprom’s Medvedev said in Moscow that Ukraine faces a 16% price jump in the third quarter without a new deal.
Should the energy dispute escalate, Ukraine might be forced to grab gas that Russia ships through its neighbor’s pipelines to the EU during the coldest winter months, Paraschiy said.
“If the dispute continues in the heating season, Ukraine would have to take the EU-bound gas,” he said. Ukraine needs more gas than last year as its coal stocks are lower, he said.
Debt Dispute
Ukraine’s state gas company, NAK Naftogaz Ukrainy, had 10.7 Bcm of gas in underground storage last week, while the level should be at least 19 Bcm, according to the Russian Energy Ministry.
Russia and Ukraine filed claims against each other in international arbitration last year over gas supply and transit contracts in place through 2019 and are waiting for a ruling next year at the earliest. Russia’s state-run Gazprom claims its Ukrainian counterpart owes it $29.5 billion, while Naftogaz demands more than $16 billion from the Russian company.
Still, Simon Pirani, a senior research fellow at the Oxford Institute for Energy Studies, said the ability of Ukraine to import gas from Slovakia, coupled with the impact of the economic crisis on demand, means Ukraine may be able to cope without Russian gas, especially if the winter is mild.
Supplies to Ukraine, halted for almost six months last year, proceeded after the EU mediated two interim deals between the two sides, allowing prices to fall to a level close to the average in Europe. Russia is considering whether to extend the accord through the third quarter or the end of the year, Russian Energy Minister Alexander Novak said last week.
The EU, Russian and Ukrainian officials will discuss extending the gas agreement later this month, he said.
Much will depend on the effectiveness of EU diplomacy now, according to Paraschiy. “The European Commission faces a difficult task, to study all risks and put pressure on Ukraine and Russia to prevent disruptions in energy supplies,” he said.
