Russian gas supplies to Ukraine halted amid new pricing spat

1st July 2015, Comments 0 comments

Gas giant Gazprom on Wednesday halted gas supplies to Ukraine after Kiev said it was suspending purchases of Russian energy in the latest row between Moscow and its war-torn ex-Soviet neighbour.

The dispute comes against the backdrop of ruptured relations between Moscow and Kiev over the conflict in eastern Ukraine, in which Russia denies directly supporting separatist rebels.

Both countries were quick to stress Wednesday that gas supplies to Europe had not been affected.

"Ukraine did not pay for July gas supplies," Gazprom chief Alexei Miller said in a statement.

"Gazprom has halted gas supplies to Ukraine from 10 am (0700 GMT) July 1," he said.

He added that the gas pricing formula for Ukraine would not be changed until late 2019, reiterating that no more gas would be sent to the pro-Western country without prepayment, irrespective of the price.

The announcement came after Ukraine declared Tuesday it was suspending all purchases of natural gas from Russia after EU-mediated negotiations in Vienna aimed at keeping supplies running broke down.

Ukraine's state energy firm Naftogaz has said it would continue transporting Russian gas supplies westward to its other European clients.

On Wednesday Ukraine's energy minister Volodymyr Demchyshyn said Kiev was ready to continue talks.

The Kremlin declined to comment.

Ukraine can get by without Russian gas in the summer but it needs supplies to refill its underground storage facilities ahead of the winter.

- 'Supplies are not endangered' -

A senior European official also said that gas supplies to Ukraine and the EU would not be at risk.

"Both gas deliveries to Ukraine and transit to the EU are not endangered," said Maros Sefcovic, the European Commission's vice-president for energy union.

Russia supplies around a third of Europe's gas, with roughly half of it flowing via Ukraine.

Kiev has been seeking to diversify its supply base away from Russia after Moscow cut gas supplies to Ukraine in 2006 and 2009, interrupting transit to Europe.

Kiev is now increasingly relying on supplies from European countries including energy-rich Norway.

According to Ukrainian gas pipeline operator Ukrtransgaz, over the past six months Ukraine has imported 6.3 billion cubic metres of gas from Europe and 3.7 billion cubic metres of gas from Russia.

Moscow hiked the price it charges Ukraine following the ouster of Kremlin-backed leader Viktor Yanukovych in February 2014.

The spokesman for the Ukrainian gas pipeline operator Ukrtransgaz, Maksim Belyavsky, said the company had on Wednesday received only a request from domestic clients for gas that enters the ex-Soviet nation through western neighbour Slovakia.

Russia had offered to keep the price it charges Ukraine through the end of September at $247 per thousand cubic metres of gas.

That figure represents a $40 discount from the price Russia had the right to set under the terms of a prior agreement.

But Russian Energy Minister Alexander Novak said Ukraine wanted a discount of at least 30 percent.

End-of-year haggling over energy prices had been a familiar problem between Russia and Ukraine but ties collapsed altogether after a popular uprising in Kiev ousted Kremlin-backed leader Viktor Yanukovych last year.

Russia then wrested the peninsula of Crimea from Kiev's control and buttressed Russian-speaking separatists in the east of the country.

- 'New round of confrontation' -

"We are talking about a new round of confrontation," Fyodor Lukyanov, the Kremlin-linked chairman of the Council on Foreign and Defence Policy, told AFP.

"If the conflict drags on then we will see Europe put pressure on both sides of the conflict so that they come to an agreement."

Analysts at VTB Capital suggested that Ukraine could eventually renew gas purchases from Russia.

"In the meantime, Ukraine is to make use of reverse gas purchases, although in our view they are unlikely to be any cheaper," the bank said in a note to clients.

Volodymyr Saprykin, an energy expert in Kiev, admitted that getting through the winter heating season without Russian natural gas would be problematic.

"Ukraine needs to pump 19 billion cubic metres of gas into storage facilities. But so far these plans are not being implemented," he told AFP.

A senior Naftogaz official, Yuriy Vitrenko, said however Ukraine had enough time to prepare for the winter, suggesting the country could import 50-60 million cubic metres of gas a day.

Fears had swirled that the gas spat would affect electricity supplies in Crimea, which come from Ukraine, but the Russian energy ministry said on Wednesday power supplies had not been interrupted.

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© 2015 AFP

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