Business World

Thursday 24 May 2018

Russia and Ukraine dispute leaves gas traders on the edge

The two parties have previously had disputes, the biggest of which in 2009 led to shortages in some European nations. Photo: Stock image
The two parties have previously had disputes, the biggest of which in 2009 led to shortages in some European nations. Photo: Stock image

Elena Mazneva

Even after sending record volumes of natural gas to Europe to help the region deal with a deadly cold snap, Russia has kept the region's gas traders on edge by escalating a dispute with Ukraine.

Russian state-run Gazprom said it's "forced" to start a court procedure to cancel gas supply and transit contracts with its Kiev-based counterpart Naftogaz that expire at the end of 2019, because it disagrees with last week's arbitration ruling on a $2.6bn (€2.1bn) debt to Naftogaz.

Shortly afterwards, Gazprom said it started March with a record daily supply to Europe.

"The arbitration procedures might take months or even years to complete and Russia isn't interested in stopping supplies to Europe because it's about revenue," said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd in London.

"Yet, it's not a great timing to announce the plan," he added.

Gazprom shipped some $38bn of gas to its most lucrative markets in Europe last year, almost half of which was delivered through the Ukrainian pipeline network.

The two parties have previously had disputes, the biggest of which in 2009 led to shortages in some European nations.

The court battle between Gazprom and Naftogaz lasted almost four years and the EU called for the companies to compromise as gas transit through Ukraine is a linchpin in the 28-nation block's energy security.

Naftogaz, which on Thursday called for talks mediated by the EU, a practice used in similar disputes three years ago, said it hasn't yet received any documents from Gazprom.

There's a lot of politics in everything related to Gazprom and Ukraine, Sikorski said.

The Moscow-based company is also preparing Europe for two planned pipelines, Nord Stream 2 under the Baltic Sea and Turkish Stream under the Black Sea, both of which Gazprom seeks to build by the end of next year, he said.

Gazprom and Russia's Energy Ministry declined to elaborate on Russia's plans for transit if the Ukrainian contract is cancelled.

"It is important that both Russia and Ukraine reaffirm their respective positions of a reliable supplier and transit country of gas, as was the case over the past years," EU Commission Vice-President Maros Sefcovic said on Friday in a statement.

The bitter cold from Italy to Scandinavia has given Gazprom, Europe's biggest natural gas supplier, an opportunity to highlight its importance.

"The deep freeze has shown once again that only Gazprom is capable of increasing gas supplies to European customers to maximum levels at a breakneck speed," said Alexey Miller, the chief executive of Moscow-based Gazprom.

"There's no other supplier that could cope with the task."

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