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UPDATE 1-Russia, Ukraine on verge of new gas row - source
May 21, 2009 / 4:00 PM / 9 years ago

UPDATE 1-Russia, Ukraine on verge of new gas row - source

* Russian source says Ukraine has no funds to store gas

* Ukraine’s Naftogaz says its financial position stable

* New war of words comes before Putin-Tymoshenko talks

(Adds Naftogaz comment, background)

By Gleb Bryanski

ASTANA, May 21 (Reuters) - Russia and Ukraine are on the verge of a new gas dispute, a Russian government source said on Thursday, adding the row was now centred around gas stocks in Ukraine to ensure smooth Russian gas transit to Europe.

“(Ukrainian energy company) Naftogaz has already received advance payments for Russian gas transit for the whole of 2009,” the source said on condition of anonymity.

He was speaking ahead of talks between Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko scheduled for Friday in the Kazakh capital.

“If Ukraine cannot solve the problem of stockpiling gas in the summer, it would mean that Naftogaz won’t be able to meet its transit obligations to European customers this winter,” the source said.

“In principle we can come to the conclusion that we are on the verge of a crisis.”

Ukraine’s Naftogaz said there was no reason for a new crisis.

“The financial state of Naftogaz is stable and there are no grounds for a new crisis to appear,” Naftogaz spokesman Valentyn Zemlyanski said.

Russia, which supplies a quarter of Europe’s gas mainly via the territory of Ukraine, cut gas to Ukraine twice in recent years due to pricing disputes amid icy political relations between Moscow and Kiev.

The cuts led to serious disruptions of gas supplies to Europe especially in January 2009 and have strengthened calls in the EU for greater energy supply diversification.

The January row was solved after marathon talks between Putin and Tymoshenko, who both said the new pricing and transit deal for 2009 was a guarantee the crisis would not be repeated.

But shadows of a new row appeared after Kiev signed in March a deal with the European Union to overhaul its ageing pipeline system, sparking an angry reaction from Moscow which said it should be involved in the deal as a key supplier.

This week, Ukraine’s energy ministry, which reports to Tymoshenko, said it hopes to store record volumes of gas by this winter but President Viktor Yushchenko, who is at odds with both his Prime Minister and Putin, slammed a proposed paying scheme. [ID:nLJ713393].

Gazprom needs to store gas in Ukraine because the capacity of the transit system does not allow it to serve Europe’s needs in full during a cold winter without additional gas use from Ukraine’s underground storage.

Gas needs to be pumped into storage during the summer when demand in Europe is low, but Gazprom says it cannot simply store it in Ukraine because it is afraid Kiev will steal it.

Gazprom has therefore been selling it to Kiev in recent years and buying it back in winter - a scheme which works well when gas prices are on the rise but which would trigger heavy losses at Naftogaz this year because gas prices are set to fall.

Last year, the RosUkrEnergo gas intermediary held part of the stored gas needed -- over 10 billion cubic metres -- in Ukraine but that arrangement was ended by the January gas supply deal and the gas transferred to Ukrainian ownership. (Additional reporting by Pavel Polityuk, writing by Dmitry Zhdannikov, Editing by Peter Blackburn)

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