Gazprom head comments on Ukraine gas issue

Jan. 8, 2009
Europe has stopped receiving gas supplies from Russia via Ukraine amid the bitter dispute that Russia's OAO Gazprom is embroiled with Ukraine over unpaid bills and prices for deliveries in 2009.

Uchenna Izundu
International Editor

LONDON, Jan. 7 -- Europe has stopped receiving gas supplies from Russia via Ukraine amid the bitter dispute that Russia's OAO Gazprom is embroiled with Ukraine over unpaid bills and prices for deliveries in 2009.

Alexander Medvedev, Gazprom's deputy chief executive, told journalists that Naftogaz, the Ukrainian company had shut in the fourth export pipeline, stopping all transit supplies to Europe. On Jan. 6, Gazprom accused Ukraine of closing three pipelines.

"We continue to do our utmost to use alternative routes," he added, with gas being delivered via the 4,100-km Yamal-Europe pipeline and underground storage. Gazprom has delivered more than 170 million cu m under contract to its European customers, he said. It is also looking at buying gas on the spot market to meet its obligations.

Naftogaz blamed Gazprom for the disruption, saying that Gazprom stopped transporting supplies to Ukraine on Jan. 7. Over the first 6 days of January, it insisted it had delivered 74 million cu m of gas to Europe from its own reserves despite Gazprom's stoppage.

Gazprom has alleged that Ukraine has stolen Russian gas intended for European consumers after it stopped exports for Ukraine's domestic needs on Jan. 1.

Different European countries have reported significant drops in their Russian imports with the Balkan countries severely impacted. Bulgaria, which relies solely on Russian gas, could run out in days and Slovakia has declared a state of emergency. France, Germany, and Italy are also suffering reductions. The shortage coincides with an Arctic cold snap which will leave millions of eastern Europeans in a humanitarian crisis if the crisis is not resolved quickly.

Both companies have blamed each other throughout the dispute and they have now pledged to the European Commission to have international monitors check the supply of Russian gas through Ukraine for Europe.

Medvedev told OGJ that it previously wanted to use international observers to monitor the metering stations in Russia and Ukraine, but Ukraine has resisted it. "We sent them to the Russia and western Europe and the Ukrainians fought against it."

Gazprom is now demanding from Ukraine $450/1,000 cu m for its exports in 2009, which is the same rate for the eastern European countries bordering Ukraine minus costs of gas transit across Ukraine. Ukraine's last price offer was $235/1,000 cu m and it has announced it will resume negotiations with Gazprom on Jan. 8. But it is demanding an increased transit fee of $2/1,000 cu m.

Medvedev told OGJ that the initial offer of $250/1,000 cu m for gas exports that expired on Dec. 31, 2008, was "very expensive for us in the present financial situation," adding that, "Ukraine said then it wanted to pay $100/1,000 cu m."

Medvedev urged Ukraine to resume talks, but complained that Jan. 8 was unfeasible as Gazprom was holding talks with officials in Europe on this date. "They [Ukraine] want to create the illusion that they want to negotiate."

"We hope that this situation will be fixed quickly and so we wouldn't want to do a force majeure clause in our contracts," he added.

Gazprom has sought to establish medium term supply contracts rather than renewing yearly agreements at different prices to avoid disruption to exports. Ukraine, Medvedev said, has rejected this proposal.

The company has not shut down any production wells amid the dispute as this could impact "very negatively" on its operations. "We have a very comprehensive upstream and midstream situation and are currently using all our underground reserves."

Contact Uchenna Izundu at [email protected].