Ukraine seeks spot supply from Europe to replace Russian gas

Tue Feb 26, 2013 12:16pm EST

* Ukraine plans to boost gas imports from Europe

* Has failed to renegotiate long-term contract with Russia

* LNG and Turkmen imports less feasible - analyst

By Olzhas Auyezov

KIEV, Feb 26 (Reuters) - Ukraine wants to import up to 8 billion cubic metres of gas a year from central Europe to replace expensive Russian supplies and take advantage of lower prices on the European spot market, a senior energy official said on Tuesday.

Vadym Chuprun, deputy head of Ukrainian state energy firm Naftogaz, said Ukraine wanted to receive gas shipments through Poland, Hungary and Slovakia.

"I think the total volume (of supplies from Poland) will reach 1 billion cubic metres (bcm) this year," he told reporters at an energy conference in Kiev.

"Separately, we plan to sign contracts on gas supplies in the amount of up to 7 bcm through Hungary and Slovakia."

This year, however, total imports from Europe are likely to stand at a more modest level of 2 bcm, Chuprun told Reuters separately.

At the same time, Chuprun said, Ukraine planned to cut imports of Russian gas to 18-20 billion cubic metres this year from an estimated 24-25 billion in 2012.

All the three countries - Poland, Hungary and Slovakia - receive natural gas from Russia shipped via Ukrainian pipelines and Kiev wants to reverse some of those links to import gas from Europe.

Earlier this week, Ukrainian Energy Minister Eduard Stavytsky said Kiev could eventually completely replace Russian supplies with those from Europe.

EASIEST OPTION

Ukraine is paying about $430 per thousand cubic metres of gas imported from Russia. Last December, it bought the first small batch - 57 million cubic metres - of gas from Germany's RWE at $408 per thousand cubic metres.

The disparity - which can become even larger if the European spot price declines - is due to the fact that Ukraine buys Russian gas under a 10-year contract signed in 2009 which links the price of gas to that of oil and oil products.

The government of Ukrainian President Viktor Yanukovich has sought since 2010 to renegotiate the contract signed by a previous cabinet but has so far failed to win any concessions from Moscow.

As a result, Kiev started exploring other options such as importing gas from Turkmenistan, building a terminal to receive liquefied natural gas (LNG) from the Gulf and purchasing the fuel on the European spot market.

According to Simon Pirani, a researcher at the Oxford Institute for Energy Studies, the latter option is the most realistic.

The LNG project is too costly, Pirani said, and faces opposition from Turkey which says it may not allow LNG tankers to pass the congested Bosphorus straits. And Turkmenistan would rather export its gas to nearby China.

"For Ukraine, overcoming obstacles to accessing gas from Europe may be far easier," Pirani told the energy conference in Kiev.

The obstacles in this case are both technical, such as reversing some pipeline without interrupting the transit of Russian gas to Europe, and legal, such as getting around the "take it or pay for it anyway" clause in the 2009 deal with Russia.

Moscow has already made it clear it was unhappy with Ukraine reducing imports and sent Kiev a $7 billion bill last month for what it says are volumes of gas Ukraine was obliged to buy.

Ukraine has refused to pay the bill and it is not clear if Moscow plans to take Kiev to arbitration over the issue. (Additional reporting by Pavel Polityuk; editing by Keiron Henderson)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.