Russia's Putin warns of Ukraine gas crisis

Russian Prime Minister Vladimir Putin warned that if Ukraine does not pay for the natural gas it has stored underground in May it may halt gas transit to Europe at the end of June or in early July.

Uchenna Izundu
OGJ International Editor

LONDON, June 8 -- Russian Prime Minister Vladimir Putin warned that if Ukraine does not pay for the natural gas it has stored underground in May it may halt gas transit to Europe at the end of June or in early July.

“Gazprom will only supply the gas which has been prepaid. Without the gas pumped into storage Ukraine will simply not survive and will be forced to take gas destined for transit,” Putin said at a news conference in Helsinki.

Ukraine owes more than $4 billion, and Russia, now backed by Italy, called upon the European Union to help Ukraine pay the fees, which were due on June 7. Russia and Ukraine’s fallout in January over payments left several countries in Europe without gas imports for almost two weeks and relationships between all the parties were damaged.

Russia and Ukraine agreed to monthly payments on the seventh of each month and specific volumes to help end the payments defaults.

Russia is concerned about the state of financial affairs at Naftogaz, and OAO Gazprom Chief Executive Alexey Miller held a meeting on June 2 with Oleg Dubina, chairman of Naftogaz Ukrainy, Ukraine’s state owned gas company, to assess its ability to pay. Miller urged the company to replenish UGS facilities so that it could transmit gas during the 2009-10 heating season.

In contrast with Putin, Miller was more cautious about disconnecting Ukraine, pointing out that both had signed a 10-year contract earlier this year. “It is as yet unclear whether Naftogaz of Ukraine could be able to pay in full and on time for gas supplied in May.” Should Naftogaz fail Gazprom would pursue 100% prepayment for gas. “They will get as much as they pay for. There's no question of cut-offs." he said.

European Commission Pres. Jose Manuel Barroso said the EU does not have the money to help Ukraine meet the payments, adding that the issue was one between Russia and Ukraine. He has promised Putin that the matter would be discussed with EU leaders at a June 18-19 summit in Brussels.

In recent weeks Russia has stressed that Ukraine would struggle to pay its gas bills, which could result in another gas supply crisis for Europe. With tension running high, industry experts have called for transparency, mechanism to guarantee payments for gas, and early warning systems if the gas was to be stopped.

Energy research firm WEIN Group said, “Joint early warning mechanisms between the three groups of stakeholders should be developed (and tested) as soon as possible. This includes joint analysis and simulation modeling of the supply-delivery chain of Russian gas to Europe via Ukraine. An analysis of potential outages and possible weak points in the system with respect to these cases must be conducted urgently, resulting among others in recommendations for measures to be taken in order to protect vulnerable consumers in Europe.”

In addition to the current supply Naftogaz will have to buy and send 19 billion cu m of gas into the storages to use domestically and transport to Europe this winter.

Contact Uchenna Izundu at uchennai@pennwell.com.

More in Government