Russia and Ukraine Remain at Odds Over Gas Price

By Peter Fedynsky
Moscow
02 January 2009

European countries are not reporting any shortages of natural gas after Russia reduced volumes shipped to Ukraine in a contract dispute between Moscow and Kyiv. Talks between the two sides remain suspended in a disagreement over the price of gas for 2009.

Alexei Miller (file photo)

Alexei Miller, the chairman of Russia's state energy company, Gazprom, said late Thursday it was withdrawing what he claims was a generous offer made when talks between the two sides broke off talks on New Years Eve.

Miller says that because Ukraine has rejected favorable terms for delivery of gas in 2009 at a price of $250 per 1,000 cubic meters, Gazprom will supply that country at the European market price of $418 as of January 1.

A Gazprom spokesman also accuses Ukraine of illegal gas siphoning, and says the company will compensate Western European consumers with increased volumes via alternate pipelines in Belarus. Gazprom claims Ukraine still owes Russia $614, which includes a penalty for late payment on November and December supplies. Ukraine says it has paid in full.

Ukrainian President Viktor Yushchenko at presidential residence in Guta, western Ukraine, 01 Jan 2009

Ukrainian President Viktor Yushchenko makes the case for the price his country is willing to pay in a statement published only in Ukrainian on his presidential Web site.  

Mr. Yushchenko says that until four years ago, the price of gas and its transit were covered by a single contract. Mr. Yushchenko notes there should be a correlation between the two; if the price of gas goes up, so should the cost of transporting it. 

He says Ukraine's price should be similar to that of Germany - $280 - minus the additional cost that Germans pay for pipeline fees across Ukraine, Slovakia and the Czech Republic. This would mean a Ukrainian price of $225. Ukraine says it has paid in full and needs to divert a certain amount of gas to maintain pipeline pressure.

Russia, however, is now insisting on $418, plus last year's price of $1.70 for every 100 kilometers of Ukraine's pipeline to Western Europe.  

The spokesman for Germany's E.ON Ruhrgas energy company, Helmut Roloff, told VOA that the $280 figure mentioned by President Yushchenko is a reasonable estimate of what Germans pay for Russian gas.  

Roloff adds that the Ruhrgas contract pegs its price for natural gas to the price of oil, which has plummeted from a high of $147 per barrel to about $40. He says the company has not experienced any delivery reductions since Russia held back Ukrainian supplies on New Years Day.  

But the spokesman notes that the Russian-Ukrainian dispute has become a yearly event that Europe will avoid upon completion of the Nordstream pipeline between Russia and Germany. It is expected to begin deliveries in 2011.

"The current situation shows the great importance of Nordstream for the energy industry," said Roloff. "This pipeline through the Baltic [Sea] can ensure the supply of large gas volumes to the European Union on a long term basis, so it's an important project and we look at it very closely."

Pipes seen in a gas storage and transit point in Boyarka, just outside Kyiv, Ukraine (file photo)

Currently about 20 percent of Europe's natural gas supply comes from Russia via pipelines through Ukraine. European consumers also purchase gas from The Netherlands and Norway, and Germany has small deposits of its own.

President Yushchenko's statement says both sides are close to a compromise and talks with Moscow should resume in a day or two and be completed by January 7.  

Meanwhile, an official Ukrainian delegation is visiting European Union capitals to reassure member states that their gas supplies will not be disrupted. And Deputy Russian Foreign Minister, Alexander Grushko, says Gazprom representatives are prepared to visit Brussels and all EU countries to explain their company's position.