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Russia-Ukraine Gas Spat Highlights Geopolitical Divide

Russia-Ukraine Gas Spat Highlights Geopolitical Divide

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The latest gas dispute between Russia and Ukraine flared up just as most of Europe was gripped by Arctic cold and just before the spy poisoning scandal in which the UK accused Moscow of poisoning a former double agent in England by a military-grade nerve agent of a type developed by Russia.

Russia’s gas giant Gazprom, which delivers around one-third of Europe’s gas, uses the Ukrainian gas system as a key route for its gas supplies. While European Union institutions want to reduce European dependence on Russian gas, Russia wants to cut its dependence on the Ukrainian transit route for its supplies to the EU by building pipelines to bypass Ukraine.

Yet, according to Ukraine, Russia will need the Ukrainian route to ship gas to Europe even after 2019, when the current transit agreement expires, the chief executive of Ukraine’s national company Naftogaz, Andriy Kobolyev, told Bloomberg in an interview this week.

“Gazprom will not be able to cope without the Ukrainian gas transportation system after 2019, so they will need to sign a new contract with us,” Kobolyev told Bloomberg, noting that Russia uses gas supplies to advance its political goals.

“Russia is totally unwilling to separate gas and politics — from their perspective it’s the same and gas plays a very important instrument in achieving a wider geopolitical agenda,” Kobolyev said.

The gas companies of Russia and Ukraine have been locked in bitter disputes for more than a decade, and the relations were further strained by the 2014 Russian annexation of Crimea.

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Ukraine Freezes After Russia Halts Gas Deliveries

Last week, Russia’s state-run gas giant and quasi-monopolist when it comes to European natgas supplies, Gazprom, announced it would not restart shipments of natural gas to Ukraine’s Naftogaz starting March 1 after the two sides failed to reach an agreement, Gazprom deputy chairman, Alexander Medvedev, told journalists.

Russian gas deliveries to Ukraine were supposed to restart on Thursday following a foreign court ruling aimed at ending years of disputes between Kiev and Moscow, including two halts to Russian gas supplies to Europe through Ukraine. But Gazprom unexpectedly refused to resume deliveries, returning the prepayment for supplies made by Kiev, claiming amendments to a contract had not been completed.

The decision came as the sides reportedly failed to extend a supplemental agreement to the current gas contract, RT reported.

“So far, the supplemental agreement to the operating contract with Naftogaz has not been approved, and that is a compulsory condition for launching the shipments,” Medvedev said. “So, we have to recover the amount paid by the company in full. And it is obvious that the shipments in March won’t start.”

In response, Ukraine’s state monopoly said that Gazprom had failed to deliver prepaid gas. Naftogaz is reportedly planning to claim damages for supply failure from the Russian energy major.

And while the long-running dispute may, but likely won’t, be resolved in court, Ukraine has suddenly found itself without heat and on Friday urged schools to close and factories to cut production, while residents shivered as the country strained to save on gas supplies.

The decision coincided with freezing temperatures all over Ukraine, and the government called on Friday for measures to reduce consumption.

Starting today, we recommended … to stop the work of kindergartens, schools and universities,” Ukraine energy minister Igor Nasalyk told lawmakers, while urging Ukrainian companies to adjust their operations to save gas, while power companies were ordered to switch to fuel oil where possible.

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Ukraine Halts Russian Gas Purchases After Price Talks Fail

Ukraine Halts Russian Gas Purchases After Price Talks Fail

It has been a bad day for deals and deadlines all around: first Greece is about to enter July without a bailout program and in default to the IMF with the ECB about to yank its ELA support or at least cut ELA haircuts; also the US failed to reach a nuclear deal with Iran in a can-kicking negotiation that has become so farcical there is no point in even covering it; and now moments ago a third June 30 “deal” failed to reach an acceptable conclusion when Russia and Ukraine were unable to reach an agreement on gas prices at talks in Vienna on Tuesday. As a result, Ukraine is suspending its purchase of Russian gas.

According to RT, Russian Energy Minister Aleksandr Novak and Ukraine’s Energy and Coal Minister Vladimir Demchishin both admitted to reporters that the negotiations had born no fruit. Demchishin added that there would be a new round of talks in September.

Meanwhile, Ukraine’s energy company, Naftogaz, will stop buying gas from Russia as of Wednesday, July 1.

“As of June 30, 2015, the agreement between Naftogaz and Gazprom runs out, and conditions for continued supply of Russian gas to Ukraine have not been agreed upon; Naftogaz will no longer be purchasing gas from the Russian company,” a press release by Naftogaz said.

The Russian minister seemed unhappy and said it was politically motivated and there were no grounds for it.

So what will prevent Ukraine from simply siphoning off Russian gas transiting its territory for Europe? Nothing, except its word:

Naftogaz gave assurances that “the transit of Russian gas through Ukrainian territory to Gazprom’s European clients will continue in full, according to contracts agreed.”

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As IMF Extends $17.5 Billion Credit To Kiev, Gazprom Demands Debt Repayment

As IMF Extends $17.5 Billion Credit To Kiev, Gazprom Demands Debt Repayment

No sooner had the International Monetary Fund (IMF) extended $17.5 billion over four years in new credit to Ukraine, Russia’s private gas giant Gazprom was claiming $2.4 billion of it to settle Kiev’s gas debt.

That’s not exactly what the IMF had in mind. The international lender’s mission chief for Ukraine, Nikolay Gueorguiev, issued a statement on Feb. 13 saying the credit was meant to address “immediate macroeconomic stabilization as well as broad and deep structural reforms to provide the basis for strong and sustainable economic growth over the medium term.”

At the same time, Gazprom sent a letter to its Ukrainian counterpart, state-owned Naftogaz, seeking a payment of more than $2.4 billion, to cover $2.2 billion in debt, plus a penalty fee of about $200 million. The debt, which Kiev doesn’t acknowledge, will be the subject of hearings at the Stockholm Arbitration Institute in early 2016.

Discussing Gazprom’s demand on the Russian television station LifeNew, Kremlin Energy Minister Alexander Novak dismissed Ukraine’s stand on the status of the debt, saying, “Gazprom has every right to claim the funds” because the gas deliveries to Naftogaz are listed on invoices according to an active contract between the two gas companies.

So far, Naftogaz has been paying the $2 billion debt in installments. Now that Ukraine has received the IMF loan, Gazprom wants the entire debt paid now.

Ever since the autumn of 2013, when many Ukrainians were demanding closer ties with the European Union at the expense of Russia, its gross domestic product (GDP) has shrunk by about 7 percent, the IMF says. In February 2014, faced with a popular uprising, the country’s president, Viktor Yanukovich, fled to Russia, which responded by annexing Ukraine’s Crimean peninsula.

 

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Ukraine Will Have Russian Gas, For Now

Ukraine Will Have Russian Gas, For Now

Kiev’s payment of $150 million to the Russia’s government-owned gas monopoly Gazprom will keep supplies flowing into Ukraine for at least the first quarter of 2015.

Gazprom said Dec. 31 that Ukraine’s gas company, Naftogaz, had paid in advance for 1 billion cubic meters of Russian gas, including 300 million cubic meters fuel it had paid for in December but had not used. That amount is to be shipped in January.

Russia and Gazprom have not been shy about simply cutting off the flow of gas to Ukraine for non-payment. It did so in 2006 and 2009 and again just last June. In doing so it threatened gas supplies to European Union customers, who get about one-third of their gas from Russia, half of it piped through Ukraine.

 

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