Gazprom-Ukraine Gas Conflict Could Leave Europe in the Cold

By Jason Simpkins

Russia’s state-run energy monopoly, OAO Gazprom (OGZPY.PK), is warning its European customers that a dispute with Ukraine could lead to supply disruptions, as the Eastern European transit state siphons off supplies to meet its own energy needs.

Representatives from Gazprom and Ukraine are negotiating a deal for 2009 natural gas purchases, but Gazprom insists that a new deal cannot be reached unless Ukraine pays off approximately $2 billion in debt to the company.

Gazprom says Ukraine owes $1.6 billion in gas imports for the months of November and December, as well as $450 million in late fees and fines. The company also says that if Ukraine does not satisfy its fiduciary obligations by Jan. 1, it will cut off supplies to the European state.

“If Ukraine doesn’t repay its debts before the end of the day December 31, Gazprom won’t have any grounds for pumping gas there,” said Gazprom Chief Executive Officer Alexei Miller. "From 10 a.m. on Jan. 1, Gazprom will completely, 100%, cease gas supplies to consumers in Ukraine."

However, 80% of Europe’s gas supply is transited through Ukraine and Gazprom has warned that the country may resort to siphoning off gas en route to customers in other parts of the continent, as it did during a similar dispute in 2006.

In January 2006, Russia cut supplies to Ukraine completely for a period of three days, causing gas volumes across Europe to fall, as Ukraine scrambled to satisfy its demand. This occurrence came close to repeating itself last March, when Gazprom again threatened to cut supplies to Ukraine.

Gazprom made good on its threats by reducing natural gas deliveries to Ukraine first by one-quarter, and then by half. However, supplies to the rest of the Europe were left undisturbed and the Russian oil monopoly restored deliveries of gas to Ukraine in full as soon as the country agreed to pay Gazprom $600 million.

There is hope that the current altercation will be resolved without incident, as Ukraine has already paid $1.52 billion of the supposed debt. NAK Naftogaz Ukrainy, the country’s state-run energy company, made the payment Tuesday to RosUkrEnergo AG, the Swiss-based trader that imports the gas from Russia. But that payment was still short of the $2 billion being sought by Gazprom.

Gazprom spokesman Sergei Kupriyanov puts the chance that the dispute will be resolved by the Jan. 1 deadline at 30%, according to the AFP. Kupriyanov said that a “crisis scenario” is more likely because Ukraine’s delay has produced “a whole layer of complex issues.”

“Our Ukrainian partners have officially notified us that, in case no contract is signed on gas supplies for Ukraine itself, it will block the transit of our product to principal consumers in Western Europe,” Russian Prime Minister Vladimir Putin said. “We believe that this is an absolutely improper position both from the economic and from the legal point of view,” he said, adding that if transit agreements were breached, there would be “serious consequences” for Ukraine and “consumers in European Union countries.”

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[valentine a...:]

A SIBERIAN’S VIEW ON THE RUSSIAN UKRAINIAN GAS DISPUTE

Presently, the economic situation in the Ukraine is such that there is no extant affordable price that the country could pay for its gas supplies. With much strain the Ukraine managed to scramble up 1.5 billion dollars and left an outstanding 614 million dollar debt to “Gasprom” for gas supplies in 2008, and that, when the price was slightly over a third of the European.

Today, the Ukraine is standing on the doorstep of complete financial and economic collapse, exacerbated by the hapless popularity of its president whose rating is nearing President Bush’s “shoe tossing” stance. The collapse of the so called “Orange” coalition is an obvious and indisputable fact and there is no need of any external nudging of which Russia is so often unfairly accused. There is enough folly inside the country to serve the purpose without anybody having to bestow more confusion from aside. Politically, the country is split among groups of warring coalitions none of which have the upper hand or a consolidating idea, and this state of affairs has become a perfect environment for anarchy and arbitrariness.
The “Gasprom’s” proposal of a 50% discount compared to European prices was turned down as was the salvaging offer of counting the gas debts of 2008 towards a prepayment for transportation expenses for gas intended for European consumers.
Russia has been often intensively criticized for making exceptionally low prices for former Soviet republics; the Ukraine was always on this short list, although President Yushenko has tread on Moscow’s heels too many times.
The rein of the “Orange” coalition has committed the Ukraine to political confusion, confrontation, and economic turmoil. Irresponsibility and nihilism have become the main traits of today’s Ukrainian policy. The country has been left without any accreditation that could be recognised as a consolidating factor capable of blending a politically disunited country.
I fear that very few realize how godforsaken the situation may become should the disruptiveness of the present situation not be dealt with adequate care and attention. Defining the problem as a “row” between Russia and the Ukraine, as it is has been stated in western media, makes things look uncivilized and urges us to forget where the sponsors of “Colour” revolutions come from and what caused the world crisis and consequently affected so drastically the situation in the Ukraine. It was definitely not Russia that has been subsidizing the Ukraine economy with dirt cheap gas prices ever since the disintegration of the Soviet Union.

Jan 06 11:56 PM