Russia Warns Cold May Force Ukraine to Siphon Off EU Gas

Let me spell this out for you… What they are saying is Ukraine is broke, owes too much money to Russia and they are ready to take some cash.   Whoever is going to give them the cash at a high interest rate is going to shut off the valve, cutting Europe from Russian Gas.  Once is done, the Export of Liquified Natural Gas will begin.

Let us see on which side Ukraine is going to topple, the West or the East?  I say, it will go with the one that gives them the best deal.

August 29, 2014

Russia warned Europe in a meeting of energy chiefs today it risks having natural-gas supplies siphoned off by Ukraine this winter if the former Soviet allies can’t resolve a payment dispute that’s been brewing all summer.

Ukraine needs to start paying its unpaid bills immediately so Russia can resume shipments in time to add the 10 billion cubic meters to underground storage needed for it to get through the winter, Russian Energy Minister Alexander Novak said in Moscow today after a meeting with European Union Energy Commissioner Guenther Oettinger. The gas storage situation in Ukraine is now “critical,” Novak said.

Russia cut off flows to Ukraine in June citing unpaid bills, and the EU, which depends on supplies via Ukraine for about 15 percent of its demand, has been trying to broker a deal to get them resumed. Russia wants Ukraine to settle part of its debt and pay advance installments before it will restart shipments, OAO Gazprom Chief Executive Officer Alexey Miller told reporters after the talks.

“We clarified a number of issues,” Oettinger said after the meeting with Novak. They relate to “what can be done in the remaining weeks until mid or late October to take the necessary precautions to build up enough reserves, enough gas storage to last through a long, cold winter.”

Ukraine Crisis

The negotiations come amid a deepening crisis in eastern Ukraine, where pro-Russian separatists are battling government forces on two fronts after NATO reported a surge of Russian troops and equipment into the war-zone. The EU and U.S. have threatened further sanctions against Russia, while President Vladimir Putin has repeatedly denied any involvement in the conflict.

While transit of Russian gas to the EU remains unaffected so far, concern is growing over a possible disruption. Faced with armed conflict in Ukraine, the 28 EU governments agreed in June to take steps to increase supply security. European countries are also preparing for a stress test of the region’s energy system to help overcome a potential cutoff in the 2014-15 winter.

“We are aware of Russia’s plans to shut transit completely in winter even to European Union countries,” Ukraine’s Prime Minister Arseniy Yatsenyuk said Aug. 27.

Russia estimates Ukraine needs to add as much as 10 billion cubic meters of gas to its underground storage and has just two months “in the best case” to do it, Novak said. The smaller country also should resume shipments in addition to those needed to replenish stockpiles, which is impossible without paying out the debt, he said.

Advance Payments

Ukraine’s state energy company NAK Naftogaz Ukrainy owes Gazprom $5.3 billion for past deliveries, the Russian exporter says. Kiev-based Naftogaz says the sum is too high after Russia raised the price by 81 percent in April.

Ukraine must now pay about $2 billion to settle the debt partially, according to Novak. It should also make an advance payment, depending on volumes, if it plans to buy more, Miller said.

The EU wants three-way negotiations with Ukraine to take place in mid-September and proposes a temporary price that would stay in place until an international court rules in cases filed by Gazprom and Naftogaz.

Under the EU’s last plan, which collapsed in June, Ukraine would pay its debt in installments, with $1 billion paid immediately and the rest by year-end.

Fair Price

Oettinger said today that a fair temporary price for gas to Ukraine could be $320 per 1,000 cubic meters in the summer compared with the current $485. A proposal will be prepared for the September talks in coming weeks, Marlene Holzner, an EU energy spokeswoman, told reporters in Brussels today.

Ukraine, which demands market-based prices, said after the talks failed that it was ready to accept the EU proposal of a price range of $300 to $385 per 1,000 cubic meters, still above the $286.5 that the country paid in the first quarter.

Novak maintained today Russia’s offer of a $100 discount for one to two years if Ukraine starts payments.

All sides are interested in an agreement as soon as possible, Novak said. “Every day brings us closer to winter.”



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