Russia Warns Of Gas Supply Disruption to Europe

  • Date: 03/05/14
  • Patryk Wasilewski, The Wall Street Journal

Russia’s energy minister on Friday questioned Ukraine’s ability to pay for Russian natural gas and said state-controlled Gazprom will ask that deliveries scheduled in June be paid for upfront, which he said poses a risk of supply disruption to European customers.

Ukraine owes more than $3.5 billion for Russian natural gas, said Energy Minister Alexander Novak after meeting his Ukrainian counterpart, Yuriy Prodan and European Union energy Commissioner Günther Oettinger.

Kiev and Moscow have long quarreled over the price of natural gas Gazprom charges Ukraine’s state-owned energy firm Naftogaz. As of April 1, Russia nearly doubled what it charges Ukraine to $485.50 per 1,000 cubic meters from $268.50 per 1,000 cubic meters.

Mr. Prodan said Kiev isn’t ready to pay the price demanded by Gazprom, which supplies about 30% of Europe’s gas needs, with around half of that traveling through pipes that cross Ukraine.

“We have discriminatory gas prices,” Mr. Prodan said, adding that Naftogaz has initiated arbitration proceedings against Gazprom, which it believes abused its market position.

Mr. Novak said Ukraine hasn’t paid for gas delivered over the past two months, and Gazprom will ask for June prepayment if Kiev doesn’t pay its gas debt by May 16, he said.

“The situation with gas transit to the EU is serious,” Mr. Novak said. “It’s possible that there will be disruptions in gas deliveries.”

Last week, Gazprom’s Deputy Chief Executive Alexander Medvedev said the natural-gas giant won’t stop pumping gas to its European customers even if Ukraine doesn’t pay its arrears, but it can’t guarantee those supplies will reach its intended customers.

Under the terms of the contract Gazprom has with Naftogaz, nonpayment of arrears in May would trigger a move to Gazprom demanding prepayment for future gas supplies. If Ukraine then doesn’t pay in advance for its next month’s gas supply, Gazprom will cut supply for Ukraine, Mr. Medvedev said.

Russia has cut off supplies to Ukraine twice in recent years, in 2006 and 2009, in both cases citing pricing disputes. The 2009 shut-off sent prices rising across Europe and triggered some gas shortages in Eastern Europe.

Mr. Novak also said Ukraine’s solvency isn’t guaranteed even if it gets the lower price it insists on, and that a recently approved $17 billion rescue package from the International Monetary Fund should be used to settle debts with Gazprom.

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