Snow-hit Ukraine faces gas squeeze as Gazprom holds back supplies

Ukrainians walk on a snow-covered street in downtown Kyiv, Ukraine, 1 March 2018. Snow, strong wind and frost up to the minus twenty degrees are forecasted in Ukraine for the next days by weather officials. [Sergey Dolzhenko/EPA/EFE]

New tensions between Moscow and Kyiv flared yesterday (1 March) after Russia’s Gazprom said it will not restart gas supplies to Ukraine and Naftogaz accused its counterpart of violating contractual agreements.

The March shipments would have become the first Russian supplies to Ukraine since November 2015 when Kyiv ceased purchasing Russian gas in favour of Europe.

Since a popular uprising ousted a Kremlin-backed regime in Ukraine in 2014, the two gas companies have been locked in a furious legal battle that led them to lodge multi-billion dollar claims against each other in the Stockholm arbitration court.

In December last year, the court lowered the price Russia can claim for its gas, but also required Kyiv to buy 5 billion cubic metres of Russian gas annually from 2018.

On Thursday, Gazprom said supplies would not be restarted because an additional agreement to the current contract had not been finalised.

“Obviously, no gas deliveries will be made to Naftogaz Ukraine from 1 March,” Gazprom deputy head Alexander Medvedev said in a statement.

He added that the Russian gas giant had returned the prepayment that Naftogaz had made for March supplies.

The March deliveries would have been the first time Ukraine bought gas from Russia since November 2015, when it started buying gas from Europe via so-called reverse flows to try to cut its energy dependency on Moscow. Reverse flows refer to buying Russian gas that has first been exported to another country.

Ukraine plans to stop buying Russian gas

Ukraine plans to stop buying Russian gas from 1 April, Ukrainian Energy Minister Volodymyr Demchyshyn said in a briefing today (23 March). The European Commission, which was mediating to ensure gas supplies to Ukraine over the summer, said it was “taking note” of the announcement.

In response, Naftogaz accused Gazprom of violating its contractual obligations.

“Gazprom’s position surprises us,” Naftogaz chief Andriy Kobolev said in a statement.

“We are buying gas because we are implementing a court decision,” he said, adding that Naftogaz intended to claim damages from the Russian company.

The European Commission said it is “ready to act as an honest broker” in mediating another gas conflict between Moscow and Kyiv.

Gazprom’s unexpected decision coincided with freezing temperatures all over Ukraine.

Record high gas consumption led to a shortage of gas in the amount of about 10 million cubic meters per day.

Andriy Kobolev suggested restricting usage of gas for four days from Saturday.

The new flare-up in tensions came after the Stockholm arbitration court ordered Gazprom to pay $2.56 billion to Naftogaz for “failure to deliver the agreed transit gas volumes”, the Ukranian company said on Wednesday.

Ukraine's Naftogaz claims $2.56 bln victory in Gazprom legal battle

Ukrainian state-owned energy firm Naftogaz said yesterday (28 February) Russia’s Gazprom would have to pay it $2.56 billion after a Stockholm court found in Naftogaz’s favour in the final stage of a long-running legal battle.

Ukrainian President Petro Poroshenko has ordered seeking the seizure of Gazprom’s assets, particularly in Europe, if Gazprom fails to pay the money as it was decided by the court.

Gazprom covers about one third of the European continent’s gas needs, a share that has increased in recent years despite the European Union’s intention to reduce its dependence on Russian gas supplies.

Pricing disputes in the past led to Russian gas supplies disruptions to Europe via Ukraine, including in 2009 and 2006. Since then Russia has been pushing for new pipeline projects via the Baltic and Black seas to bypass Ukraine.

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