Russia on Monday cut gas supplies to Ukraine as a payment deadline passed and negotiators failed to reach a deal on gas prices and unpaid bills amid continued fighting in eastern Ukraine.
The decision does not immediately affect the gas flow to Europe, but could disrupt the long-term energy supply to the region if the issue is not resolved, analysts said.
Ukraine’s Naftogaz company head Andriy Kobolev said Russia had cut the supply of gas to Ukraine, but that Ukraine can manage without Russian gas until December.
Gazprom spokesman Sergei Kupriyanov said that since Ukraine had paid nothing for the gas by Monday, from now on the company would demand that Ukraine pay in advance for any future deliveries.
Ukraine was ready to accept a compromise in talks in Kiev of paying $1 billion now and more later, but Russia didn’t accept the offer, the European Commission said in a statement.
Ukraine has been chronically behind on payments for the gas needed to heat homes and fuel its industries. The gas conflict is part of a wider dispute over whether Ukraine aligns itself with Russia or with the European Union. It comes in the midst of the severe crisis in relations between the two countries that has followed Russia’s annexation of Crimea in March. Ukraine accuses Russia of supporting a separatist insurgency in its eastern regions, which Russia denies.
The pipeline to Ukraine also carries gas meant for Europe, but Kupriyanov said that the supply to Europe will continue as planned. Ukraine has the obligation to make sure the gas will reach European customers, he said.
However, Gazprom has notified the European Commission of “a possible disruption in the gas transit” in case Ukraine decides to siphon off the gas, the company said.
Analyst Tim Ash at Standard Bank PLC said Russia was likely to cut off only the gas meant for Ukraine, but that Ukraine could in theory simply take what it wants since the gas is intermingled. That would result in a shortage in pipelines to Europe that could hinder the buildup of stored gas ahead of the winter heating season when demand is higher.
“So the message is that this is unlikely to bring a short-term hit to gas supply in Europe, but it will build up problems for the winter unless a deal is reached quickly,” he said in an email.
Bulgaria, Slovakia and Hungary get 80 percent or more of their gas from Russia, while Poland, Austria and Slovenia get around 60 percent.
Sabine Berger, an European Union spokeswoman, said in Brussels there was no official information as to changes in gas supply to the EU, and that as far as she knew, the flows remained “normal.”
Amid mounting tensions between Russia and Ukraine, Russian Foreign Minister Sergey Lavrov said Monday he will never again speak to his Ukrainian counterpart, who showed up at a weekend protest in Kiev and used a four-letter word to denounce Russian President Vladimir Putin.
Ukrainian demonstrators spattered the Russian Embassy in Kiev with paint and eggs Saturday after pro-Russian separatists shot down a Ukrainian military transport plane, killing all 49 people aboard. In Moscow, police detained several men who were throwing flares at the Ukrainian Embassy.
In December, Russia offered the previous Ukrainian president, Viktor Yanukovych, a discounted price of $268.50 per thousand cubic meters after he backed out of an economic and political agreement with the EU under pressure from Moscow.
Russia annulled all price discounts after Yanukovych was chased from power in February following months of protests, raising the price to $485 per thousand cubic meters starting April 1.
Amid the talks, Russia has offered $385, the price that Ukraine was paying until December, but Kiev insisted on a lower price.
Gazprom chief Alexei Miller scoffed at the demand, saying that it’s unclear why Ukraine is asking for the price, which is significantly below European market prices.
Gazprom has tolerated the late payments but now says Ukraine owes a total of $4.458 billion for gas from last year and this year.
Russia wanted a payment of $1.95 billion for past-due bills by 9 a.m. Kiev time Monday.
“Ukraine will get as much gas as it pays for,” Miller said. He emphasized that to buy any gas from Russia, Ukraine first has to settle the $1.95 billion debt.
Gazprom announced on Monday that it is suing Ukraine’s state energy company Naftogaz in an international court for the $4.5 billion. Naftogaz said it has also filed a suit against Gazprom, seeking a “fair and market-based price” for gas, as well as a repayment of $6 billion for what it said were overpayments for gas from 2010.
Ukrainian Prime Minister Arseniy Yatsenyuk angrily rejected the Russian position, putting Gazprom’s move on par with the annexation of Crimea and the pro-Russian insurgency in eastern Ukraine.
“We won’t subsidize Russian Gazprom company,” he said. “Ukrainians will not take out 5 billion dollars per year to let Russia spend this money on weapons, tanks and planes to bomb Ukrainian territory.”
In Moscow, Russian Prime Minister Dmitry Medvedev said at a meeting with the Gazprom chief and other officials that the Ukrainian position was “absurd” and amounted to blackmail.
Berger said EU energy commissioner Guenther Oettinger remains committed to helping broker a deal between Kiev and Moscow.
“We stand ready to act as a mediator in these talks to facilitate a compromise, but for the moment, there are no new dates set,” Berger said.
One reason for EU involvement is the current state of Ukrainian gas reserves. Berger said they now stand at around 13.5 billion cubic meters. For the EU to be assured to enough gas for the coming winter, those reserves should be at 18-20 billion cubic meters at the end of the summer, Berger said.
Ukraine’s energy minister, Yuriy Prodan, said that “the Ukrainian side is prepared for such a turn of events and we are providing reliable transit of gas and supplies to domestic consumers.” He said Ukraine could do that because of lower seasonal demand and gas that had been stored.
Berger said that the European Union was working toward a deal that would allow shipments of gas to Ukraine via Slovakia.
(AP)
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6 Responses
The Russian Prime Minister actually went and said that Ukraine’s behaviour smacked of blackmail!! He’s either a comedian or a complete idiot (maybe both).
If Ukraine tots up the value of what Russia stole from it – ships sunk, reserves of fuel and other supplies grabbed in Crimea, hardware, property, etc. – the total would by huge. If Russia really wants to play this game, then let’s start. To encourage her, let’s cut her out of the world financial system and depress the value of oil and gas; Putin’s economic strategy is dependent of these two commodities.
Although the West has pussyfooted till now, they do actually have some very persuasive tools to hand. But do they have the will to use them?
“let’s cut her out of the world financial system and depress the value of oil and gas”
And from where are you going to find sufficient quantities of natural gas at prices lower than Putin’s to deliver to Europe?
“they do actually have some very persuasive tools”
Such as?
Shale – fracking. Europe does not depend on Russia for petroleum.
Once Russia’s oligarchs start to feel the pinch, Putin can only cling to power with his FSB – just like all the other dictators. This can’t last for long in Russia, because it will breed dissent amongst the rich and educated, who have travelled the world.
NATO has the means (not sure about the will) to effectively blockade the Black Sea by making it clear no Russian ship will be allowed out into the Mediterranean until Russia starts behaving reasonably.
Whatever the propagandists and fools say, the simply, verifiable truth is that Russia is responsible for this crisis and is digging itself into a pariah’s hole. They have used that most stupid and crude tactics to “show” that Kiev’s governments are fascists, while in fact proving to the world that this title more aptly belongs to Moscow’s government. Ukraine and its people are far from being saints, that is clear, but that have the right to choose their own destiny.
AviLondon:
1. The West cannot “depress the value of oil and gas”. They are market based prices. And shale gas exports to Europe will take close to a decade to get rolling.
2. Ukraine needs Russia. A lot. And Russia can cause a world of trouble for Ukraine (as you’ve seen.)
3. Germany needs Russia. A ton of business will be lost to Germany if sanctions are ratcheted up too much. And Germany has demonstrated in the past several months they will not agree to sanctions that hurt them disproportionally, as any effective sanctions will cause.
4. Blockading a sea is according to international law an act of war. Russia will disregard such a blockade and simply sail right past it forcing NATO to either open live fire hence starting a hot war against Russia for the first time in history (after a long cold war that never went hot due to the nuclear deterrent of mutual self-destruction) and thus risking a nuclear war over Ukraine on Russian ships or helplessly watch as Russia violates the blockade without repercussion making a mockery of NATO. Obama made clear he will not go to war against Russia. Germany will never agree to allow NATO to blockade the sea. That idea is lala fantasy.
5. The West brought about this predicament they are in with their violations of international law by going to war without UNSC authorization against Bosnian Serbs and Yugoslavia as well as recognizing the independence of Kosovo (without any election, btw) after UNSC Resolution 1244 guaranteed the sanctity of Serbian borders. This gave Russia the opening to do the same, recognizing the independence of Crimea.
Chuck Schwab:
You don’t seem to know how vulnerable Putin has made Russia’s economy. Yes, a small dip in demand will depress the price of gas – just a few percent will cause a lot of trouble. And it will NOT take Ukraine or Britain 10 years to frack gas.
Ukraine needs Russia to buy much of it’s outdated and uneconomic goods. It will definitely take a lot of money to reform Ukraine’s economy – but Poland managed very well.
Turkey happens to be able to block off the Black Sea without actually breaking international law (look carefully at the history and agreements). If Russia actually attacks Turkey it is attacking NATO, making war inevitable. Nobody is stopping Russia playing with its second rate fleet within the Black Sea.
Kosovo was a humanitarian crisis in no way comparable to Crimea. Serbia tried ethnic cleansing – a war crime – but was stopped by NATO. Russia, by using Kosovo as an excuse, has opened the gates to Chechnya, Dagestan, Nagorny-Karabakh. Not exactly their intention. Crimea will also turn out to be rather an expensive new toy.
Germany is not likely to be consulted by Turkey about bottling up the Black Sea. Germany and France’s hostility to Turkey’s EU ambitions are very real indeed. Turkey is more concerned about Russia’s threat than keeping German and French rich men in their smart cars.
Russia has demonstrated it is willing to pay a price of economic damage to their economy in exchange for a demonstration of power and patriotism. Putin will take an economic hit to be a hero of Russian expansionism.
I meant American exports of shale gas to Europe will take over five years. Ukrainian and British shale gas exploration in quantities sufficient to replace Russian gas will also take years.
Turkey cannot legally make a complete blockade of the Black Sea. They can close certain sections but in the agreements you refer to Russia has the right of passage. If Russians ships sail past any blockade they needn’t open fire. It would be whoever is enforcing the blockade that would have to open fire first on the Russians. And they wouldn’t. Second rate fleet or not they have the second largest nuclear power. This entire idea of blockade is fantasy. No NATO country would even dream of actually doing it.
You say Kosovo is incomparable. The Russians disagree with you. They say Kosovo should never have happened and the West says Crimea should never have happened. Both ignored the other. Russia has no fear of Chechnya or the other entities. They’ve already twice demonstrated they will brutally crush anyone who attempts to break away. Chechnya will not try a third time.