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Tom Nicholls: Gazprom threatens to cut gas supplies to Ukraine

Gazprom says it is owed $1.3 billion for gas deliveries in the first nine months of the year and that if it doesn’t get paid by the end of the month, it will start reducing gas supplies to its neighbour. Gazprom will cut gas flows to Ukraine if $1.3 billion in unpaid gas bills are not settled by the end of October, the company says. “Gazprom will be forced to start reducing natural gas deliveries to consumers in Ukraine in case the debt is not settled by the end of October,” the Russian gas monopoly said in a statement, adding: “With the onset of autumn and winter, when gas consumption traditionally rises, we are mindful of the need to resolve this issue urgently.” AlexanderMedvedev.jpg Gazexport boss Alexander Medvedev: the clock is ticking An interruption to Russian gas flows to Ukraine might have a knock-on effect on Russian gas supplies to the European Union, which relies heavily on Ukrainian pipelines to bring in gas from Russia. Gazexport, Gazprom’s gas-export arm, says it does not expect any disruptions in supplies to European buyers because these are governed by separate contracts. But if Ukraine resorts to stealing gas from the transit pipeline to make up for any shortages in Russian deliveries, flows to Europe would be affected. When Gazprom shut off exports to its neighbour for just over a day in January 2006 – in a dispute over gas pricing often referred to as the gas war – pressure in transit pipelines feeding Europe dropped. Gazprom says it has “repeatedly urged” RosUkrEnergo [the murky Ukrainian intermediary through which Gazprom supplies Turkmenistani gas to Ukraine] to pay the $1.3 billion, but claims “no action” has yet been taken. The Gazexport spokesman said he believed RosUkrEnergo is itself suffering from “a long chain of internal non-payments”. Gazexport, however, says there is no excuse for non-payment. Ukraine pays around $135 per 1,000 cubic metres for its gas. Although this is a significant step-up from the $50/000 cubic metres it paid in 2005, it is well below the $230/000 cubic metres paid by Western European customers. “We consider this market price as perfectly acceptable to the Ukrainian economy and there is no problem for Ukraine to pay this gas price,” the spokesman said. Gazprom is likely to be accused of timing its announcement to cause political disruptions in Kiev in the aftermath of Sunday’s inconclusive parliamentary elections in Ukraine. However, Gazprom insists that this is not the case: according to the Gazexport spokesman, the non-payment issue has been under discussion by the two sides for two months and Gazprom delayed making the problem public until early October in order to avoid accusations of attempting to influence Ukraine’s elections. Gazprom is certainly in a difficult situation: no Western energy company would be expected to stomach non-payment on such a scale. Yet taking the politics out of the energy relationship between Russia and Ukraine is nigh on impossible. Indeed, analysts say the result of Ukraine’s elections may directly influence the price of gas Russia charges Ukraine. If – as the exit polls suggested – pro-Western parties are confirmed as having won the election, then there is likely to be a ratcheting-up of tensions between Ukraine and Russia. (For now, the main Moscow-backed party has refused to concede defeat and an investigation into alleged vote rigging in the pro-Russian east has been launched). Nonetheless, Yulia Tymoshenko, Ukraine’s firebrand opposition leader and one of the Orange Revolution’s leaders, seems likely to regain her post as prime minister, at the expense of the Kremlin’s favoured candidate, Viktor Yanukovych. Tymoshenko’s last stint as prime minister in 2005 was marked by trade wars with Russia, she is critic of the 2006 agreement that ended the gas war and wants to see RosUkrEnergo removed as the gas-sales intermediary. “Gazprom may use a potential change in government and the decision to eliminate RosUkrEnergo’s role as an excuse to hike prices for Ukraine,” says Global Insight energy analyst Andrew Neff. Before the election, he points out, Russia’s ambassador to Ukraine, Viktor Chernomyrdin, was quoted by Interfax as saying that the price of gas Ukraine is offered by Russia in 2008 “will depend on who comes to the government and how they handle the talks”.