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Russia, Ukraine look to avert New Year gas row
December 26, 2011 / 2:06 PM / 6 years ago

Russia, Ukraine look to avert New Year gas row

* Russia and Ukraine to restart gas talks on Jan. 15

* No deadline for talks

* Gazprom links South Stream project to talks with Ukraine

By Vladimir Soldatkin

MOSCOW, Dec 26 (Reuters) - Ukraine and Russia will renew gas talks on Jan. 15, Russia’s Gazprom said on Monday, as they strive to avert a standoff over pricing, which in the past has led to supply cuts and gas shortages in Europe during New Year holidays.

Both countries have pledged to ensure steady gas flows to the Europe Union, which relies on Russia for one quarter of its gas supplies, despite differences over pricing and the ownership of Ukraine’s strategic gas pipeline system.

Kiev and Moscow have been locked in difficult gas talks for the past year as Ukraine, whose fragile economy is suffering from a budget deficit, seeks a cut in the cost of Russian gas, which is set to rise to $416 per thousand cubic metres (tcm) in the first quarter of 2012 to match what the EU is paying.

The price is currently around $400 per thousand cubic metres. Ukrainian President Viktor Yanukovich said last week he considered $250 per tcm the highest acceptable price.

But Russia has been adamant in saying Ukraine must stick to the multi-year contract signed in 2009. Moscow also faces a budgetary squeeze next year as it is set to embark on a public spending spree ahead of March 4 presidential elections, which Prime Minister Vladimir Putin is poised to win.

On Friday, Gazprom Chief Executive Officer Alexei Miller and Ukrainian Energy Minister Yury Boiko met in Russia’s second-largest city of St. Petersburg.

“The participants have taken note of the positive and constructive character of the 2011 talks and good perspectives for the next round of talks, which will take place on Jan. 15,” Gazprom said in a statement on Monday.

Unlike 2009, there is no clear deadline for a deal, which is seen as important to securing shipments of gas to Europe by establishing a price and joint control of the transit pipelines that carry more than half of Russian gas deliveries to the EU.

But Gazprom has little incentive to hurry a deal while it stands to gain leverage in the talks as Ukraine’s fiscal position worsens. It also continues to collect the higher price stipulated in the current contract in the meantime.

GAS PIPELINES AT STAKE

Prior to the November launch of the Nord Stream gas pipeline, which started to pump gas directly to Germany along the Baltic Sea bed at a yearly rate of 27.5 billion cubic metres, Ukraine used to tranship around 80 percent of Russian gas to Europe.

The rest passed through Belarus, which last month agreed to cede its gas pipeline operator Beltransgaz to Gazprom in return for cuts to gas prices, which will average at $164 per tcm in 2012.

Russia would be glad to take over the gas pipeline system in Ukraine as well, but the idea has met with public outrage and fierce opposition in Kiev.

According to Russian Energy Ministry sources, Moscow offered to split pipeline ownership equally between Kiev and Moscow. A proposal also to include EU companies is on the table.

Nord Stream will double its capacity to 55 bcm a year when the second stage is commissioned by the end of 2012, further weakening Ukraine’s position in the talks.

Moscow is also pushing forward with plans to build the 15.5 billion euro South Stream pipeline, a rival to the EU-backed Nabucco project, to carry 63 bcm of gas a year to Southern Europe via the Black Sea from 2015, in order to bypass transit countries such as Ukraine.

Gazprom Chief Executive Alexei Miller said on Monday that the implementation of the South Stream project hinges on gas talks with Ukraine.

“South Stream has always been linked to Ukraine,” he said.

A source in the Russian Energy Ministry told Reuters that Russia expected Turkey to give its a nod to the pipeline to pass through its waters. Ankara’s prior refusal to give South Stream the green light has been a stumbling block for the project.

A Russian delegation is due to meet with Turkish counterparts on Tuesday to discuss energy issues.

“South Stream will effectively kill off the need to acquire Ukraine’s gas transit system,” the source said. (editing by Jane Baird)

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