Gazprom, Naftogaz sign supply, transit deals

Gazprom and Naftogaz have agreed to a gas transit agreement and supply contract for Russian gas in 2009, ending a 17-day standoff that affected Gazprom's gas deliveries to the EU via Ukraine.

Uchenna Izundu
International Editor

LONDON, Jan. 19 -- Russia's OAO Gazprom and Ukraine's Naftogaz have agreed to a natural gas transit agreement and supply contract for Russian gas in 2009, ending a 17-day standoff that affected Gazprom's gas deliveries to the European Union via Ukraine.

The deal was clinched after Russia, Ukraine, and the European Commission held emergency talks in Moscow Jan. 17-18.

Russian supplies to Ukraine are under a 10-year contract that is separate from the transit of Russian gas to Europe. "The Russo-Ukrainian agreement excludes all intermediary organizations such as RosUkrEnergo [the Swiss based trading company]," Gazprom said. Until the end of this year, Ukraine is to receive a 20% discount from this year's average European price, which Russia says was $450/M cu m. In return, Ukraine will hold Gazprom's transit fees at 2008 prices.

However, in 2010, Russia and Ukraine will charge each other European prices for supplies and transit, respectively.

Russia's Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoschenko attended the companies' signing of the contracts in Moscow Jan. 19.

But because trust between the two countries has deteriorated substantially it remains to be seen whether the agreement will be honored without any obstacles, particularly as a deal brokered by the European Commission to restart gas flows collapsed last week.

The European Commission acknowledged the new contract, but urged immediate resumption of gas deliveries via Ukraine as millions of Europeans, particularly in eastern and central Europe have suffered a loss in heating in freezing temperatures. Bulgaria is the hardest hit, and member states have proposed bringing gas from Greece to Bulgaria.

"Our monitors will verify when the gas actually starts to flow," the European Commission said. Gazprom said it would start transit of gas as soon as possible, but experts expect that it will take 36 hours before consumers will receive it.

Russia stopped supplies to Ukraine Jan. 1 because Kiev would not agree to higher prices in 2009 and because Gazprom said Ukraine's 2008 bills went unpaid. Six days later, Russian gas exports to Europe through Ukraine ceased amid Gazprom's claims that Naftogaz was siphoning gas intended for its customers.

As the dispute escalated Gazprom stressed gas supply route diversification; pushing progress on its Nord Stream and South Stream pipeline projects, which bypass Ukraine. Slovenia, which has been one of the European countries worst affected by the crisis, has expressed an interest in having supplies from South Stream, which will transport Russian gas via the Black Sea to the Bulgarian border.

Alexey Miller, chief executive of Gazprom, said: "If the European partners come to us with a proposal to increase the South Stream capacity, we shall consider it."

Contact Uchenna Izundu at uchennai@pennwell.com.

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