Russia-Ukraine gas talks set to focus on price as EU seeks deal
VIENNA (Bloomberg) -- Russia and Ukraine were poised to wrangle over natural-gas prices at talks brokered by the European Union, which seeks to secure an agreement on supplies of the fuel through at least next winter.
Russian Energy Minister Alexander Novak and his Ukrainian counterpart, Volodymyr Demchyshyn, are meeting in Vienna on Tuesday in negotiations hosted by the European Commission’s vice president for energy union, Maros Sefcovic. The talks, which started around 2 p.m., follow Russia’s decision on Monday to offer Ukraine a new gas-price deal with a smaller discount.
Novak, who was to present the Russian offer of narrowing the discount by 60% in the third quarter, said his country isn’t ready to change it as all terms are set, according to Interfax. Demchyshyn, whose government has signalled it was looking for lower prices, told reporters the Ukrainian delegation hasn’t made a final decision yet.
“Let us discuss,” Demchyshyn said before the meeting. “We haven’t achieved anything, haven’t met with Russians yet.”
The goal for Ukraine and the EU is to reach a bridging deal that would stay in place until an arbitration court decision on a dispute between OAO Gazprom and NAK Naftogaz Ukrainy, or at least through next winter. The court in Stockholm is expected to issue its verdict in late 2016 or in 2017.
Ukraine, Russia and the EU must sign a trilateral protocol to confirm all the agreements, Naftogaz said in a statement on Facebook Tuesday. Naftogaz and Gazprom also must sign an addendum to their gas accord with the newly agreed details, according to the statement.
Supply Disruption
An agreement between the two former Soviet allies would reduce the risk of supply disruption for the EU. Russian gas shipped via Ukraine accounts for more than 10% of Europe’s demand for the fuel. Payment disputes between Russia and Ukraine disrupted transit flows to Europe in 2006 and 2009 during freezing weather.
The EU in October brokered a five-month deal between the two countries to ensure stable supplies through the cold season, including a price discount and a waiver on take-or-pay fines levied for fuel Ukraine hasn’t imported but is obliged to pay for under contract. In March, Russia signed a similar temporary agreement with Ukraine through June, saying it would make quarterly decisions on any further accords because of volatility in the gas market.
Third Quarter
The government in Moscow on Monday agreed to lower the contract rate by about $40 per 1,000 cubic meters during the third quarter, according to Prime Minister Dmitry Medvedev. That would leave the price unchanged against the current quarter at about $247, Gazprom Chief Executive Officer Alexey Miller said.
Should the second-quarter $100 discount, which expires on June 30, be upheld in the third quarter, the cost for Ukraine would be lower because gas prices in the contract are linked to oil prices with a nine-month time lag.
Talks on a new package are mired in politics amid a deadly, more than a yearlong conflict in eastern Ukraine with pro-Russian separatists. The Moscow-based company said last week that Naftogaz owes it $212 million for 704 MMcmg supplied to eastern Ukraine. Ukraine rejects demands to pay for gas delivered to rebel-held teritorries, saying it cannot control how much they imported.
While Ukraine can cope without Russian gas in the summer months starting in June, it must increase imports and spend at least two months refilling underground storage before the next cold season. The cost for Ukraine of adding about 7 BBcmg to its current stockpiles is equal to $1.7 billion using the Russian gas price.
