OAO Gazprom’s threat to end natural gas discounts for Ukraine adds to the financial burden on the near-bankrupt government in Kiev and makes Europe’s energy supply part of the escalating crisis.
Russia’s gas-export monopoly said on March 1 it may end last year’s agreement to supply Ukraine at a cheaper rate unless it’s paid $1.55 billion owed for fuel. It’s the first time since the overthrow of pro-Moscow president Viktor Yanukovych last month that Russia has directly used its position as Ukraine’s dominant energy supplier to pressure the new regime.
Vladimir Putin, who has permission from lawmakers to deploy troops to Ukraine, has repeatedly used gas to strong-arm his western neighbor, cutting off supplies twice since 2006 over payment disputes. Because Ukraine hosts a network of Soviet-era pipelines that carry more than half of Russia’s gas exports to the European Union, any disruption of supply puts the region’s energy security at risk.
Gas debt “is a traditional Russian move to pressure Ukraine,” said Mikhail Korchemkin, head of Malvern, Pennsylvania-based East European Gas Analysis. “In the past decade the Kremlin used the gas tap as a tool of political pressure on the former Soviet republics.”
Photographer: Vincent Mundy/Bloomberg
A section of the Urengoy-Pomary-Uzhgorod pipeline, also known as the West-Siberian...Read More
Gazprom shares fell as much as 13 percent to 121.82 rubles in Moscow, the most since 2008, as investors sold Russian stocks and currency is response to Putin’s actions in Ukraine. The stock traded 123.29 rubles at 11:02 a.m. local time.
Interim Government
Ukraine’s interim government led by Arseniy Yatsenyukcan little afford to meet Gazprom’s demand for back payment as it tries to negotiate a $15 billion bailout with the International Monetary Fund. Ukraine, which uses more natural gas than France, gets more than half its supply from Russia.
Ukraine has an agreement, negotiated last year by Yanukovych’s government, to buy gas at a discounted rate until the end of March. In the days after the government fell, Russia’s prime minister said the deal could be honored under a new regime. That’s now changed.
Ukrainian Energy Minister Yuriy Prodan told reporters in Kiev on March 1 that he’s unsure when payments to Moscow-based Gazprom can be made.
“It seems without payments for gas and fulfillment of commitments, Ukraine may not keep its current gas price discount,” Gazprom spokesman Sergei Kurpriyanov said by phone.
Russia’s Energy Ministry sees no reason to renew the agreement to reduce gas prices in the second quarter, Interfax reported, citing an official it didn’t name.
Photographer: Andrey Rudakov/Bloomberg
An OAO Gazprom Neft logo sits on display at a gas station near the headquarters of OAO...Read More
Gas Shipments
So far, Russian gas shipments to Ukraine and the rest of Europe haven’t been disrupted during the crisis. Supplies are passing through the network as normal, two officials at national pipeline manager Ukrtransgaz said yesterday, asking not be named because they aren’t authorized to talk to the press. Supplies and transit continue uninterrupted, Gazprom press services said by telephone today.
“It’s very difficult to predict the next moves, any party in the conflict may go for broke,” said Dennis Sakva, an energy analyst at Dragon Capital in Kiev. If Russia ends contracts to supply Ukraine, it may have a knock-on impact on European supplies, he said.
Gazprom supplied about 30 percent of Europe’s gas last year, according to data from a bond presentation last month. Still, a milder-than-average winter means European stockpiles are higher than normal, so the worsening relationship between Russia and Ukraine hasn’t yet had a dramatic impact on EU gas prices.
U.K. gas for delivery next month gained as much as 3.3 percent on ICE Futures Europe today.
Largest Customers
Germany’s EON SE, one of Gazprom’s largest customers, said while it’s getting supplies as normal, the company always kept gas stored to cope with unexpected disruptions.
In a prolonged outage, gas buyers could turn to other pipeline suppliers such as Algeria and Norway or increase imports of liquefied natural gas on tankers.
“Thank God it’s spring now and our underground storages are full,” said Bohdan Sokolovskyi, who was an energy adviser to Yanukovych’s predecessor. That will enable Ukraine to maintain supplies to Europe in the short term even if Russia cuts shipments to the former Soviet republic, he said.
Ukraine probably has enough gas stored to last for four to five months, according to Alexander Paraschiy, an analyst at Concorde Capital in Kiev.
South Stream
Longer term, the crisis will add impetus to Gazprom’s South Stream project, a Black Sea pipeline from Russia to Europe that bypasses Ukraine. The Nord Stream link that runs from Russia to Germany has already cut the proportion of EU-bound gas shipped through Ukraine to about 50 percent from 80 percent since it opened in 2011.
“The key ramification is speeding up South Stream construction with more support now for this project from previously skeptical European customers,” said Lev Snykov, a partner at Greenwich Capital in Moscow.
Source : http://www.bloomberg.com/news/2014-03-02/russia-gas-threat-shows-putin-using-pipelines-to-press-ukraine.html
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