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Page added on June 16, 2014
Russia cuts gas supply to Ukraine
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.
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.
“Gazprom supplies to Ukraine only the amount that has been paid for, and the amount that has been paid for is zero,” Kupriyanov said Monday morning.
Ukraine’s Naftogaz company head Andriy Kobolev said Russia had cut the supply of gas to Ukraine. He added that Ukraine can manage without Russian gas until December.
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.
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.”
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.
On Saturday, pro-Russian separatists shot down a Ukrainian troop transport, killing all 49 people aboard. Ukrainian demonstrators spattered the Russian Embassy in Kiev with paint and eggs and overturned cars. In Moscow, police detained several men who were throwing flares at the Ukrainian Embassy.
In December, Gazprom offered the previous 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.
That price was cancelled April 1 and raised to $485 per thousand cubic meters. Russia has now offered $385, the price that Ukraine was paying until December, but Kiev insisted on a lower price. 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. As the deadline passed Gazprom issued a statement that it would start demanding payment in advance for gas.
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, saying that “we are not going to give in to Russian pressure… we are not going to subsidize Gazprom.” He said Ukraine would press in the arbitration court for prices set “honestly, openly and on market principles.”
In Moscow, Russian Prime Minister Dmitry Medvedev said at a meeting with the Gazprom chief and other officials that the Ukrainian position was “absurd.”
The European Commission said in a statement that 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.
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.
10 Comments on "Russia cuts gas supply to Ukraine"
Makati1 on Mon, 16th Jun 2014 8:02 am
Deadbeats pay up or else. And since Europe put their own head in a noose when they backed Yatzi, they deserve a cold winter. They may have gas now, but come October…
And Putin is laughing his ass off at the absurd ‘demands’ of a puppet government. Contracts are contracts. No real court is going to do anything but agree with Russia. Pay up or freeze. Ukraine is broke. It has to come from mainly Germany. Herr Merkel must be feeling the squeeze about now. She has to guarantee that the gas will actually get to Europe and not the Ukraine. Once it crosses the Russian border is is first come first served.
Kenz300 on Mon, 16th Jun 2014 8:23 am
Every country needs to develop a plan to become more self sufficient in their energy supplies and diversify their sources. Energy security and economic security require a diverse mix of energy resources and suppliers.
It is time to break away from the old centralized model to a more decentralized model that relies on local energy production and provides local jobs.
Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste can all be produced locally.
Energy, biofuels and recycled raw materials for new products can now be developed from waste or trash. Every landfill can be converted to provide energy, biofuel and recycled raw materials for new products.
That is more sustainable than burying the trash. It also provides local energy and local jobs.
The old centralized model of model energy production and distribution is giving way to a new decentralized model.
rockman on Mon, 16th Jun 2014 8:42 am
“Ukrainian Prime Minister Yatsenyuk: we are not going to subsidize Gazprom.” He said Ukraine would press in the arbitration court for prices set “honestly, openly and on market principles.”
As of May 1 the IMF approved a $17-billion loan to Ukraine with an immediate disbursement of $3.2 billion to help the country pay its debts.
Seems as though the situation is rather simple: Ukraine has the money to payoff some of the Russian NG debt. The Russian offers to sell Ukraine NG for the same price or less than it’s selling to EU countries thus offering it at the market price. So Ukraine has the funds to pay for the Russian NG and choses to not buy it. So their decision to not import…not Russia’s.
John D on Mon, 16th Jun 2014 2:49 pm
I could never figure why Ukraine-so utterly dependent on Russia- decided to snub Russia and cozy up to Western Europe. Did they not think through the consequences?
Makati1 on Mon, 16th Jun 2014 8:50 pm
John, it is not the Ukraine people, it is the puppet the US has installed as President. If you think that the elite who pull the strings give a damn about the Ukrainians or Europeans or Americans, you are mistaken. They actually want the population to shrink and have said so in their plans for us. If we die by starvation or bullets or freezing to death, they don’t care. Death is profitable in so many ways that they win no matter what happens.
Davey on Mon, 16th Jun 2014 9:01 pm
Wow, stepping out there Mak, please give some support to that comment because it sounds like idealogue propaganda to me. Something you are prone to Mak.
clueless on Mon, 16th Jun 2014 11:41 pm
Well said Mak1. The more chaotic in Ukraine, the better for amerika.
Ukraine is dead as far as i know, unless otherwise SHE begs Russia some mercy.
sparky on Mon, 16th Jun 2014 11:51 pm
.
Europe get it’s gas from Russia via four pipelines , three big and one smalller
only one pass through Ukraine
the others are the North Stream going through the Baltic seabed straight to Germany
the second pass by Bielorussia and is dependent of their president for life
the fourth pass through Turkey to the Balkans
there is also a Mediteranean line coming from Algeria
Germany , the Baltics states shoul;d be OK , Poland might be restricted Romania and the rest of the Balkans are royaly screwed.
everybody will feel some pain at some level
it will raise the spot price a fair bit and those without a long term contract with Gasprom are probably not amused at all.
it bring to the fore the vexing problem of South Stream a big pipeline under the Black sea to Bulgaria .
the European comission has been sabotaging the project with gusto , ( who are those guys working for ??
Europe twisted Bulgaria arm so hard you could hear the bones snap the project was delayed .
I guess now that could change , Russia certainly can say ” I told you so “
J-Gav on Tue, 17th Jun 2014 5:14 am
What were the U.S., Europe, Ukraine, NATO, the IMF etc thinking? That Russia was going to keep supplying Ukraine with gas for free? Sheese, such a strategy!
Davy, Hermann, MO on Tue, 17th Jun 2014 6:50 am
You are exactly right Gav, You can’t have your cake and eat it. If these folks you mention are going to help facilitate a wedge between Russia and Ukraine but still want Russia to support Ukraine through cheap energy then there is faulty thinking bordering on the absurd. Likewise what is Russia thinking that they create their alternative to the West but still pretend they can enjoy the benefits of a global system? A Russia that can ignore the fact they are tied to the hip to the west at multiple levels. Russia drive for a regional union will hurt Russia and everyone else. These actions have a way of snowballing into trade civil wars. The hubris and absurd geopolitical and economic thinking on both sides is pushing the global system we all depend on to the brink. What is alarming is the lack of compromise and dialogue. It will be a race to the bottom for all involved or until a crisis pushes clear thinking to the fore front.