Russia-Ukraine ‘summer gas crisis’ looming

Russia said on 3 June that it may cut gas supplies to Ukraine if the country does not pay for gas to be pumped into underground storage, once more threatening transit supplies to Europe. Analysts said they interpreted this new crisis as pressure to speed up work on the Nord Stream pipeline project.

Russia’s warnings about gas transit risks send shivers throughout Europe and are often followed by Russian calls to speed up construction of alternative gas export routes bypassing transit countries. 

“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,” Russian Prime Minister Vladimir Putin told a news conference in Helsinki. 

“This may lead to a stoppage of gas transit to Europe in the end of June or start of July,” Putin said. 

Russia, which supplies a quarter of Europe’s gas mainly via Ukraine, has cut gas to Ukraine twice in recent years due to pricing disputes amid icy political relations between Moscow and Kiev. 

The cuts led to serious disruptions of gas supplies to Europe, especially in January 2009, and have strengthened calls in the EU for greater energy supply diversification. 

Barely four months after that dispute, Russia rejected a Ukrainian proposal to defer payment on up to $5 billion in gas storage fees. Moscow has urged the European Union to help Kiev pay the bills, but the EU’s response has been cool. 

Buy-back no longer profitable 

Under the terms of the supply deal clinched in January, Ukraine is to complete payment for monthly imports by the seventh day of the following month. 

No disruption in the payment timetable has so far been recorded, and Ukrainian state energy firm Naftogaz said on Monday it would pay for May’s imports in full and on time. 

Earlier, the chief of Russian gas giant Gazprom voiced concern about Ukraine’s ability to pay. 

Gazprom needs to store gas in Ukraine because the capacity of the transit system does not allow it to serve Europe’s needs in full during a cold winter without additional gas use from Ukraine’s underground storage. 

Gas needs to be pumped into storage during the summer when demand in Europe is low, but Gazprom says it cannot simply store it in Ukraine because it is afraid Kiev will misappropriate it. 

Gazprom has therefore been selling it to Kiev in recent years and buying it back in winter – a scheme which works well when gas prices are on the rise but which would trigger heavy losses at Naftogaz this year because gas prices are set to fall. 

Pressure on Finland 

Putin also said he saw no reason why Finland should not authorise the alternative Nord Stream Baltic Sea gas pipeline which will go through Finland’s territorial waters and pump 55 billion cubic metres of Russian gas annually to Europe. 

“The project does not undermine Finland’s interests at all,” Putin said. Finnish Prime Minister Matti Vanhanen said three permissions were still needed, with the government’s decision expected in September-October. 

Permits to build and operate the pipeline are needed from Russia, Finland, Sweden, Denmark and Germany, whose territory it would traverse. Estonia, Latvia, Lithuania and Poland are considered “affected countries” and must be kept informed. 

Putin responded by saying that Russia and Finland will discuss a rise in export duties for Russian timber – a sensitive issue in Finland whose wood processing industry depends on Russian timber – also in September. 

“I would like to remind that at Finland’s request a planned hike in export duties for raw timber had been frozen […] We hope it will be a two-way street,” Putin said. Russia says it hikes the duties to develop its own wood processing industry. 

The dispute over the timber duties, set to rise to a prohibitive level next year, is one of the few remaining issues in Russia’s 15-year bid to join the World Trade Organisation, which, Putin said, remains Russia’s goal. 

(EURACTIV with Reuters.)


Speaking in an interview with the UNIAN-Novyny EU project, Ukraine's Ambassador to the EU Andry Veselovsky  expressed his conviction that Russia is deliberately sowing panic, claiming Ukraine's insolvency to pay for natural gas supplies. 

The ambassador reminded that on 29 May Premier Vladimir Putin called European Commission President José Manuel Barroso asking him to help Ukraine pay for gas supplied from Russia. Russia had earlier appealed to the IMF to audit Ukraine and extend its credit. 

"Such moves have absolutely the same purpose as those made by Russia in January of 2009 at the height of Russia-Ukraine gas spat. Their goals are to sow panic, create the impression that the Ukrainian cabinet does not control the situation in the country and cannot take care of the interests of Ukrainians," the diplomat stressed. 

"We all are convinced that Ukraine will pay for its May gas supplies, just like it has paid for past supplies. However, at the pay day approaches, desperate calls begin to emanate in Moscow, brandishing Ukrainians as deadbeats and cash-strapped adventurers," Veselovsky says. 


A payment dispute between Russia and Ukraine over gas supply and transit left millions of East Europeans without heating in the first three weeks of 2009. 

A solution to the gas crisis was later found between Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Timoshenko, but observers remained cautious (see EURACTIV LinksDossier on 'Pipeline politics'). 

Current stocks in Ukraine will be too low to ensure normal flows of Russian gas to Europe this coming winter, Moscow recently warned (EURACTIV 27/05/09), saying that disruptions could occur if Kiev does not find the money to replenish reserves. 

Russia insists that Ukraine should prepay some five billion US dollars to replenish its underground gas reserves with 20 billion cubic metres of gas. However, Ukraine is in a difficult financial situation, and Gazprom says it may have to cut supplies unless "EU bodies assume some responsibility". 

In the meantime, Russia is pushing forward its two pipeline projects, designed to bypass Ukraine – South Stream (EURACTIV 18/05/09) and Nord Stream (EURACTIV 14/05/09). 

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