Russia, Ukraine edge closer to gas accord at EU-brokered talks

BRUSSELS (Reuters) - Russia and Ukraine edged toward an agreement on winter gas supplies at EU-mediated talks in Brussels on Friday, their first discussions since the former Soviet republic stopped buying gas from Gazprom last November, EU officials said.

Pressure gauges, pipes and valves are pictured at an "Dashava" underground gas storage facility near Striy, Ukraine May 28, 2015. REUTERS/Gleb Garanich

Since relations broke down over Russia’s annexation of Crimea and support for pro-Russian separatism, Ukraine has relied on gas from storage and reverse flow purchases from European Union neighbors.

Russian Energy Minister Alexander Novak and his Ukrainian counterpart Ihor Nasalyk met in five-hours of talks brokered by the European Commission’s energy chief Maros Sefcovic, who is seeking to guarantee winter gas transits to Europe via Ukraine.

“Some work still remains to be done,” Sefcovic said in a statement. “Parties were close to conclude today and will now need to discuss the format of the agreement.”

The 28-nation bloc relies on Russia for about a third of its gas, most of it flowing through pipelines across Ukraine. Gas pricing disputes disrupted deliveries in 2006 and 2009 - causing painful shortages in freezing weather in some EU nations.

Concerns over new supply cuts in Europe have grown. But EU sources were skeptical over a deal being brokered on Friday.

Novak said Ukraine was interested in buying gas from Russia and they had no disagreement over gas prices for December, as oil-indexed prices were lower than spot market ones.

Ukraine’s state energy company Naftogaz said on Thursday it had 13.2 billion cubic meters (bcm) of gas in storage and was buying around 55 million cubic meters per day from EU neighbors to its west.

“It’s enough gas to see us through to the end of winter,” Naftogaz CEO Andriy Kobolyev told journalists in Brussels.

Ukraine has exhausted funds from a European Bank for Reconstruction and Development (EBRD) loan to buy 1.8 bcm of gas from six European firms this year, he said, but can still draw on a $500 million World Bank loan.

Gazprom and Naftogaz have taken their dispute over gas contracts running through 2019 to an international arbitration court in Stockholm, each claiming about 30 billion dollars.

Ukraine wants to amend the long-term contract over gas purchases and transits, saying some elements run counter to Ukrainian and EU anti-trust law.

A ruling on the gas supply terms is expected by April, Kobolyev said, and on transit terms in the second quarter.

Until then, discussions hosted by the EU are limited to terms on pricing and volumes for winter gas supplies, based on prepayment by Ukraine.

The talks this winter are taking place some weeks later than two previous rounds of discussions. EU sources said Russia had delayed talks as it waited for a decision by the Commission, allowing it to pump more gas via the Opal pipeline link to Germany, which bypasses Ukraine.

Ukraine has protested vehemently against the decision.

Reporting by Alissa de Carbonnel; Editing by Ruth Pitchford and David Evans