Gazprom threatens to stop gas deliveries to Ukraine

Gazprom's CEO Alexei Miller. Photo: Gazprom's website

Gazprom CEO Alexei Miller [Gazprom]

Russian gas exporter Gazprom will halt supplies to Ukraine if it fails to pay off part of its gas debts by Monday, chief executive Alexei Miller said yesterday (12 June), raising fears of gas flow disruptions to Europe.

Miller said that if Ukraine failed to pay $1.95 billion (€1.44 billion) to Gazprom it would start requiring Kyiv to pay in advance for further shipments, and that if it did not receive any money at all, it would cut off supplies.

A dispute over gas prices is central to Russia’s crisis in relations with Ukraine, which has led to the worst standoff with the West since the end of the Cold War.

No agreement has been reached in several rounds of talks brokered by the European Commission. As the latest talks hit an impasse, Gazprom set 16 June as the deadline for Ukraine to pay off part of its debt.

>> Read: Ukraine energy minister: Russia blocks gas price talks to promote South Stream

“If Ukraine pays for no [gas] volumes at all, it means that […] gas shipments to Ukraine will be zero,” Miller said in televised comments.

Moscow says Ukraine has piled up more than $4 billion in debts to Gazprom, which also delivers gas to the EU, half of it through pipelines that cross Ukraine.

Russia almost doubled the gas price for Ukraine to $485 per 1,000 cubic metres from April 1 after Ukraine’s Moscow-leaning president was toppled in February.

Ukraine wants Moscow to stick to the price of $268.5 agreed for Kyiv at the end of last year after ousted President Viktor Yanukovich ditched plans to forge closer ties with the EU.

Moscow has offered to cut the price to $385, by eliminating an export duty of $100 per 1,000 cubic metres. This would be in line with the last year’s average price for Russian gas in Europe of $387.

Other routes

Russia supplied the EU and Turkey with 162 billion cubic metres (bcm) of gas last year, a record high, meeting around a third of Europe’s gas demand. Around half of that went through Ukraine.

Russia’s gas supplies to Europe, through Ukraine, were interrupted during the winters of 2006 and 2009, because of pricing spats with Kyiv.

Miller said on Thursday that Gazprom might boost gas supplies to Europe via other routes, including the Nord Stream pipeline through the Baltic Sea.

“We will do everything to provide uninterrupted gas supplies to European consumers,” he said.

However, Russia’s ability to ship gas via Nord Stream is limited because of EU regulations, which require third-parties to also be given access to pipelines.

Russia built Nord Stream, with a capacity of 55 bcm a year, to bypass transit countries such as Ukraine. It plans to build a South Stream pipeline on the bed of the Black Sea, to Bulgaria, and further up to Austria.

The European Commission has asked Sofia to suspend work on South Stream pending a decision on whether the project complies with EU law. Separately, Washington has warned that Bulgarian companies working on the project could be hit by sanctions.

>> Read: Bulgaria’s government to collapse over South Stream

Miller said Bulgaria had not notified Gazprom of any suspension of work on construction of the South Stream still under way.

On 8 June, Bulgarian Prime Minister Plamen Oresharski said his cabinet was stopping construction until Brussels lifted its objections to the project. At the G7 summit, Commission President José Manuel Barroso made it plain that the EU’s executive had launched an infringement procedure against Bulgaria for non-compliance with European rules on energy competition public procurements.

But yesterday, Mihail Mikov, the speaker of the Bulgarian parliament, said that no decision to stop the construction of South Stream has been adopted. Mikov added that the earlier statements by Oresharski were “misunderstood”.

EU energy ministers meet in Luxembourg today to discuss the energy strategy proposed by the Commission aimed at reducing energy dependence on Russia. The 26-27 June EU summit will decide on measures to reduce the bloc’s energy dependence from Russia that may include freezing the South Stream project until it is brought in line with EU legislation and the new strategy.

Russia’s gas export monopoly Gazprom sells its gas to EU clients under secretive bilateral deals.

An illustration on how Gazprom uses the price of gas as a political weapon was provided in the context of the unfolding Ukraine crisis.

Ukraine was paying Gazprom a price of $400 per thousand cubic metres (tcm)under an agreement signed under former Prime Minister Yulia Tymoshenko, back in 2009.

Moscow dropped the price to $268.50 after then-President Viktor Yanukovich turned his back on a trade and association agreement with the European Union last year, but reinstated the original price after he was ousted in February.

Ukraine insists on a price of $268.50 per 1,000 cubic meters while Russia stands by its demand for $485. The European Commission is trying to get the two sides to agree in the middle.

  • 13 June: EU energy ministers meet in Luxembourg;
  • 26-27 June: EU heads of state and government to adopt strategy to reduce the Union’s energy dependence from Russia.

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