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Russia, Ukraine sign gas deal, end standoff

Tuesday, January 20, 2009 , Posted by Linda at 10:10 AM

MOSCOW – Russia and Ukraine pledged to restore natural gas supplies to Europe after signing deals Monday to end a bitter dispute that led to a chilling two-week cutoff of shipments.

Europeans, who normally get about one-fifth of their gas from Russia via Ukrainian pipelines, anxiously awaited for the fuel to start flowing.

Russian Prime Minister Vladimir Putin, right, looks at his Ukrainian counterpart Russian Prime Minister Vladimir Putin, right, looks at his Ukrainian counterpart Yulia Tymoshenko

Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko on Monday signed the documents at Putin's government headquarters on the Moscow river. They resulted from an outline agreement they had clinched in late-night talks Sunday as heads of Russia's state-run natural gas monopoly Gazprom and the Ukraine's Naftogaz.

"As a result of intensive and lengthy talks we have reached agreement on all issues concerning natural gas supply to Ukraine and its transit to Europe," Putin said. He said Gazprom had been instructed to resume shipments bound for Europe that had been halted since Jan. 7 as Moscow and Kiev argued over 2009 gas prices and allegations that Ukraine was stealing gas destined for Europe.

Tymoshenko said the gas would be pumped toward Europe as soon as it enters the Ukrainian pipes.

Early Tuesday, Gazprom chief Alexei Miller ordered the resumption of deliveries bound for Europe via Ukraine to begin at 10 a.m. (2 a.m. EST) Tuesday.

In a directive issued before dawn, Miller told company officials to ensure the neighboring countries' pipeline systems are synchronized to get the gas flowing at the designated time.

Officials said the restored gas shipments could take up to 36 hours to cross Ukraine, which is the size of France, and reach European customers.

EU officials were taking a wait and see attitude.

"We now need an indication of the precise time that gas deliveries will be resumed. Our monitors will verify when the gas actually starts to flow," the European Commission said.

Europe gets about 20 percent of its total natural gas needs from Russia via Ukrainian pipelines, and the cutoff hit hard at some countries, such as Bulgaria and Slovakia, that rely almost entirely on Russia for gas. In the Balkans and other eastern European nations, the crisis has shut factories and left millions of people to shiver in unheated homes.

The confrontation has deeply shaken Europeans' trust in both Russia and Ukraine as reliable energy suppliers — something each has repeatedly insisted it is, while blaming the other for the supply cutoff.

More than 15 nations have been forced to scramble for alternative sources of energy. The dispute was further complicated by geopolitical struggles over Ukraine's future and over lucrative export routes for the energy riches of the former Soviet Union.

Before dawn Sunday, Tymoshenko and Putin negotiated a preliminary deal for Ukraine to get gas with a 20 percent discount from this year's average European price, which Russia says is $450 per 1,000 cubic meters. That would double the price Ukraine paid in 2008.

However, natural gas prices for Europe are expected to fall sharply later this year, due to the reduction in oil prices. By midsummer, Ukraine could be paying as little as $150 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow's Alfa Bank.

Russia, meanwhile, will not have to pay Ukraine higher transit prices to use its pipelines this year. Putin said in 2010, Ukraine will have to pay full price for Russian gas, and Russia will pay market prices for transit.

Tymoshenko said the deal would save Ukraine billions of dollars. But there was no celebration in the camp of her political rival, President Viktor Yushchenko.

Citing Monday's deal, Yushchenko's energy adviser Bohdan Sokolovsky said Ukraine will pay $360 per 1,000 cubic meters in the first quarter of this year, and then a lower price. He said the average price for 2009 should be $235-$240 — still a significant increase from the $179.50 it paid last year.

Sokolovsky said Ukraine was giving more than it was getting out of the deal. He said that by continuing to pay last year's transit fee of $1.70 per 100 kilometers, Russia was getting a 60 percent discount — as opposed to a 20 percent reduction for Ukraine.

Currently have 1 comments:

  1. Alex says:

    Plus we should remember two important facts. At first, Ukraine will suffer losses because the price for using Ukranian gas pipe didn’t grow proportionally to the Rusiian gas price. Let’s make a simple calculation. Russia pays Ukraine $1,7 for transporting 1000 cubic meters of gas on 100 km. Average distance which is passed by Russian gas by our pipe aproximately 1100 km. Russia transports to Europe at least 110 milliards cubic meters of gas annually. So Ukraine gains about $2 milliards anually. And the lowest European price is $4 per 100 kilometers, so we could gain about $4,7 milliards. Accordingly we can say that Timoshenko complimented Putin about $2,7 milliards.

    How much gas could be purchased by these? 10-12 milliards of cubic meters at least. Timoshenko grants Putin more than the 50% of annual gas necessity of Ukraine. Receiving the increasing of prices and Ukraine’s obligation to buy technical gas by own cost, though at favourable prices.