Ukrainian minister: ‘Gas can stop flowing at any moment’

Yuriy Prodan. Photo Georgi Gotev

Yuri Prodan [Georgi Gotev]

EXCLUSIVE / The gas price hike from $268.50 per 1,000 cubic meters to $485.50 imposed by Moscow on Kyiv could cut gas supplies from Russia to the EU through Ukrainian territory, Yuriy Prodan, Ukraine’s minister of energy and coal industry told EURACTIV in an exclusive interview.

Prodan, who made these statements yesterday (8 April) after he met Energy Commissioner Günther Oettinger, said the price surge was “political, groundless, and unjust with respect to Ukraine.”

Russian gas export monopoly Gazprom announced this week that it was raising Ukraine’s prices by 81%: from $268.50 per thousand cubic meters (tcm) to $485.50, which will mean that Ukraine, a country neighbouring Russia, will pay the highest price for Russian gas in Europe.

Up to now, under a December 2013 agreement, Ukraine was paying $268 per tcm, having been rewarded for the decision of then-president Viktor Yanukovich to put on hold his country’s association negotiations with the EU, to develop relations with Russia instead. This was a discount of one third compared to the price of around $400 per tcm negotiated in 2009 by former Prime Minister Yulya Tymoshenko. 

According to the December 2013 agreement, a new gas price must be confirmed every quarter. The agreement was coupled with a promise of a credit by Russia to Ukraine of $15 billion, of which only the first tranche was paid.

“But in 2014 Russia stopped this credit. If we had received this credit, we would have settled our debts and we would be able to pay for gas supply under the price agreed of $268.5 for tcm,” the minister said, insisting that “$268.5 for tcm is the objective price which should apply”.

Prodan said that his country has made a proposal to Russia based on the 2013 agreement, and that it committed to regularly pay its dues based on this price.

“Why Russia doesn’t want to apply the coefficient which gives the price of $268.5 is not clear. So Ukraine sees it as a political decision,” he noted.

Asked to comment on a statement by Prime Minister Arseny Yatsenyuk, who called the new price proposed by Russia “economic aggression”, he said: “Of course, when the price is unjustified, when it is excessive, when it doesn’t correspond to the market realities, this is economic aggression. After the military aggression [in Crimea] we are now faced with economic aggression, economic blockade. Such a price can only lead to cutting the gas supplies to Ukraine and the next step of course is the cutting of gas supplies to Europe.”

Asked when this could happen, he made reference to the gas crisis of 2009, which left part of the European countries without gas in the middle of the winter. “This can happen in any moment, just as it happened in 2009. But I want to repeat that we have a proposal to Russia, and that we are ready to discuss on the basis of this proposal.”

The minister added he had “very constructive talks with Commissioner Oettinger”, who assured him that the EU was ready to assist Ukraine for reverse gas supplies.

In recent years, the EU had made possible “reverse gas flows”, meaning sending gas to Ukraine from Poland and Hungary, from where nearly 2 bcm of gas have already been imported, as well from Slovakia, where technical problems still need to be resolved. Although this was basically Russian gas, it was still cheaper than the price of around $400 per tcm Kyiv was paying until the December 2013 agreement.

Prodan said that he has discussed with Oettinger the possibility of such supplies from Slovakia, saying that as much as 20 bcm per year could be received from this country.

“The only question is that our technical experts, together with Slovak technical experts, would go to the station Ve?ké Kapušany [the main entry point for Russian gas leaving Ukraine to go into Europe] and identify action needed to allow the beginning of supplies. We are proposing to the Slovak side to do this immediately and agree a memorandum specifying when the supplies from Slovakia to Ukraine could start,” the minister said.

But Russia recently warned that reverse flows were illegal. Asked to comment, Prodan insisted that such supplies were in line with EU legislation and namely the Third Energy Package, and that that was the only legal base applying for the transaction.

Asked about the fact that the gas used in reverse flows is also Russian gas, he said: “It doesn’t matter. Gas could be purchased by gas traders at any platform and supplied to any point in the EU. It’s Russia who doesn’t want to play by those rules, but this is a problem for Russia.”

Prodan appeared optimistic about the possibility of gas flows making up for Russian supplies, and meeting his country’s demands: “If we add to the 20 bcm from Slovakia 5 bcm from Poland and Hungary this is already a substantial amount”, he said. Ukraine imports an estimated 26-26 bcm per year.

The minister also said that he had spoken with Oettinger about the possibility European operators to use Ukrainian gas storages.

“If we count all the possibilities, it would be possible to meet all the demands of Ukraine”, Prodan said.

Asked if he discussed with Oettinger the prospects for South Stream, the Gazprom-favoured pipeline intended to bring gas to Europe under the Black Sea to Bulgaria, circumventing Ukraine (see background), he said:

“We discussed that the construction of South Stream is not economically justified and does not correspond to the European legislation.”

Asked if he thought the EU would put brakes to the project, Prodan said:

“What I understand is that some EU decisions may delay South Stream. Commissioner Oettinger said that an infringement procedure against Bulgaria is underway, due to nonconformity of the project with the Third Energy Package. And the Commission will also alert those European companies which infringe on the Third Energy package.”

In fact, the Commission clarified that EU has only sent a letter to the Bulgarian energy minister, asking for clarification following controversial legislation adopted by the Bulgarian parliament on first reading.

Asked if Ukraine feared that less Russian gas will transit through its territory if South Stream is built, Prodan said:

“We actually hope that South Stream will not be built. Because it is economically unsustainable, and because a pipeline exists and works under better conditions than those of the costly South Stream.”

Asked what Ukraine’s intentions are, in developing shale gas, the minister said that his country had two contracts to explore shale gas production, with Shell and with Chevron. He added that Kyiv wanted this activity to be accelerated, and hopes to have the first results in three years’ time.

“But the Russian aggression in Crimea has caused a big setback, because we lost important fields in the Black Sea shelf. We evaluate this loss at $40 billion, in terms of lost income from shale gas from Crimea,” Prodan said.

Asked if he expected that the EU would pay Ukrainian gas bills to Gazprom, he said:

“The European Commission won’t pay such bills, but we discussed issues related to the possibility that IFIs would make extra contributions.”

On Tuesday night, Kyiv missed a midnight deadline to reduce its $2.2 billion gas debt to Russia, although Gazprom did not say whether it would take any action.

South Stream is a Russian project for a natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia, with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI.

Russia signed intergovernmental agreements with:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

Subscribe to our newsletters