Russia, Ukraine Agree Weekend Talks to Resolve Gas Dispute

11:32, 15 January 2009
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Natural gas jumped...

Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Timoshenko will meet in Moscow on Jan. 17 to resolve a natural-gas dispute that’s disrupted shipments to the European Union for nine days, according to Bloomberg.

The meeting was called after the EU threatened to urge companies in the 27-nation bloc to seek legal remedies if fuel supplies aren’t resumed without further delay. The crisis has led to power shortages in the Balkans, with rationing introduced and factories shut down because of a lack of fuel.

Natural gas jumped and the ruble slid to a record as the continent endured a second week without transit gas supplies from Ukraine. Slovak Prime Minister Robert Fico said he sees no early resumption of flows, halted last week after Russia accused Ukraine of siphoning off gas intended for EU customers for its own use, a charge the country denies.

“Russia and Ukraine will be at loggerheads for the foreseeable future,” Frank Schallenberger, a commodities analyst at Landesbank Baden-Wuerttemberg in Stuttgart, said today in a Bloomberg Television interview. “The only way to solve this problem is to find other routes and build pipelines to get the gas to Europe.”

Russia stopped flows through Ukraine on Jan. 7 after negotiations over gas prices and transit fees broke down. OAO Gazprom, the Russian gas exporter that provides a quarter of the continent’s gas needs, estimates it has lost $1.1 billion in export revenue since the crisis unfolded.

Ukraine’s Guarantee

Timoshenko sent a telegram to Putin guaranteeing Russian transit gas flows to EU nations “apart from 8 percent of gas used to fuel gas pumping,” according to a statement on the government Web site today.

Russian President Dmitry Medvedev yesterday invited Ukraine and the EU to an emergency summit in Moscow this weekend to reach a settlement and also prevent a repeat of the crisis.

Russia is prepared to compensate Ukraine should it agree to ship gas to Europe from underground storage reservoirs near its western border, Medvedev said.

He made the proposal after meeting the prime ministers of Slovakia, Moldova and Bulgaria, nations hit hardest by the supply cutoff. The cutoff has already led to renewed calls for region to diversify its sources of energy away from Russia.

Ukraine’s President Viktor Yushchenko said he supported three-way talks, rejecting Russian’s offer to host the summit in Moscow because it’s a party in the dispute. He suggested Prague or Brussels as alternatives.

Studies Proposal

The EU is still studying Medvedev’s proposal, a spokesman for the European Commission said today.

Gas prices in the U.K., Europe’s largest market, climbed as much as 8.1 percent to 67 pence a therm, according to broker Spectron Group Ltd. That’s equal to $9.79 a million British thermal units. A therm is 100,000 Btus. The ruble fell as low as 32.4112 per dollar.

NAK Naftogaz Ukrainy, the state energy company, said yesterday it was unable to meet a Russian request to pump gas across its borders without jeopardizing domestic supplies.

“Instead of just saying ‘we want our gas’, the Europeans need to do something to change the dynamics,” Andrew Neff, senior energy analyst at Global Insight, said from Ankara.

The actions of Russia and Ukraine suggest both are incapable of delivering on their commitments to the EU, European Commission President Jose Barroso said yesterday.

‘Technical Difficulty’

“We’ll see very soon whether there is a technical difficulty or whether there is no political intention to honor the agreement,” Barroso said in Strasbourg, France. “It will be clear if indeed there is or not the political will to fulfill the commitments.”

Ukraine demanded 1.5 billion cubic meters of gas for free in the first three months of the year to resume transit to Europe, Gazprom Chief Executive Officer Alexei Miller said yesterday. That volume of gas would amount to giving Ukraine a $700 million present, Miller said.

Timoshenko said in the telegram that all natural gas used for technical needs, needed to operate the pipeline system, will be paid for once price is set for Russian gas deliveries.

Naftogaz said it would have been forced to curtail domestic gas supplies if it had agreed to transport gas through an export route requested by Gazprom yesterday.

Risk of Collapse

The Russian company had proposed sending 98.8 million cubic meters of gas yesterday through Ukraine, via the Sudzha pumping station. Naftogaz wanted Russian flows to be sent to the Valuyki and Pisarevka stations.

Ukraine’s pipeline system would have been at risk of “collapse” if the nation had agreed to the request from the Russian company, Yushchenko said. The route Russia asked to use for transit was “strange” and would have cut off deliveries to four Ukrainian provinces, he said.

In response, Gazprom said the Sudzha station had been designated as the main transit pipeline by both sides, and that it was also the shortest route to the Balkans.

Slovakia is using imports and backup generators to avoid a blackout following the supply cut. It’s also asked Ukraine to ship 20 million cubic meters of gas from its reserves while Gazprom has agreed to supply that amount to storage in eastern Ukraine, Fico said. The Slovak side is awaiting a response from the Ukrainians.

Slashed Consumption

Bulgaria has slashed daily consumption by more than half, using gas from reserves to meet demand, shut 72 factories and rationed gas for heating utilities and 150 other companies. Moldova has also imposed curbs on gas use.

The EU should step in and pay for the 140 million cubic meters of gas Gazprom accuses Ukraine of having diverted, the Oxford Institute’s Stern said.

He said it would cost the EU about $63 million to buy 140 million cubic meters of gas to replace the volume Gazprom says has vanished from the pipeline system. “The EU should give Russia that money,” Stern said.

Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows and supplies to Ukraine’s domestic market were suspended Jan. 1.

In 2006, Russia turned off gas exports to Ukraine for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.

 

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