Russia, Ukraine Moving Toward Interim Gas Deal

Russia, Ukraine Moving Toward Interim Gas Deal
Russia, Ukraine Moving Toward Interim Gas Deal

Russia and Ukraine moved closer to a preliminary natural gas agreement -- valid for this winter only -- as the European Union brokers a truce in a dispute that was set to disrupt flows during the coming months.

If approved, Ukraine will pay $3.1 billion by the end of the year for previously delivered supplies and Russia in return will provide at least 5 billion cubic meters of gas to Ukraine in the coming months, EU Energy Commissioner Guenther Oettinger was quoted by Bloomberg as saying on Friday following talks with the Russian and Ukrainian energy ministers in Berlin. Oettinger said the European Union would guarantee a loan from the International Monetary Fund to help Ukraine meet its debt payments. The deal foresees an initial installment of $2 billion due by the end of October, with the outstanding $1.1 billion due by the end of December.

National leaders of both countries must still sign off on the deal, Oettinger said.

“I’ve experienced tough but constructive negotiators over the past weeks,” Oettinger told reporters. “Avoiding gas shortages is in the interest of all those involved.”

Ukraine may get a $100 discount for Russian gas for 6 months, Russian Energy Minister Alexander Novak said. This will reduce the price of gas for Ukraine to $385 per 1,000 cubic meters.

Under the deal, Ukraine would pay $385 per 1,000 cubics meters (about $10.9 per million British thermal units) for gas for the next six months. The agreement is at the price that Russia’s OAO Gazprom (GAZP) had said was its final offer and at the highest level the EU had previously said should be paid.

  $5.3b Unpaid Bill

The EU, which depends on Russian gas piped through Ukraine for about 15 percent of its demand, has been trying to broker an accord to maintain shipments since May. After the last round of three-way talks failed in June, Russia stopped supplies to Ukraine, citing $4.5 billion in unpaid bills at the time. The debt has now swelled to $5.3 billion, according to Gazprom, the world’s biggest natural gas producer.

Oettinger said there wasn’t any agreement on the final price of gas supplied earlier to Ukraine because it’s the subject of a court dispute in Sweden between both nations. He said $3.1 billion is the minimum Ukraine would have to pay.

Ukrainian Energy and Coal Industry Minister Yuriy Prodan said the National Bank had guaranteed the disbursement of $3.1 billion to Naftogaz of Ukraine for this purpose. “We should come to agreement on the volume of gas supplies to Ukraine. Then we will be ready to pay this amount,” he said.

A preliminary gas accord is needed, while a final agreement on the price is possible only after the international arbitration in Sweden decides on Gazprom and Naftogaz claims, Prime Minister Arseniy Yatsenyuk told reporters in Kiev.

“Unfortunately, we haven’t reached agreement with the Russian side on the price mechanism,” he said. Poland and Slovakia, which have the capacity to supply Ukraine through reverse flow, said earlier this month Russia has been supplying less fuel than requested. Gazprom said it was fulfilling its contractual obligations and the European request was for additional supplies. That may have to wait until November as Russia fills its own storage to a record level, it said.

Russia has challenged the reverse gas flows. “We believe that reverse isn’t provided in the existing contracts between Gazprom and its consumers” in Europe, Novak said Friday.