Community News

Thursday, January 8, 2009

Gazprom refuses to agree to EU gas monitoring plan

January 8, 2009

By Tara Patel and Daryna Krasnolutska

Jan. 8 (Bloomberg) -- OAO Gazprom, Russia’s natural-gas exporter, will resume fuel shipments to Europe through Ukraine as soon as international monitors are deployed, Chief Executive Officer Alexei Miller said.

Ten EU companies agreed to join a committee to monitor flows of Russian gas through Ukraine, Miller told reporters in Brussels today. Russia is prepared to double the fee it pays to send gas through Ukraine, Prime Minister Vladimir Putin said.

Since a previous dispute over gas prices in 2006, European nations have diversified their sources of fuel and improved inventories. They are also using more gas, the source of 24 percent of the world’s energy in 2007, to reduce emissions linked to global warming. Gazprom suspended transit flows yesterday after accusing Ukraine of siphoning off gas destined for other buyers, a charge denied by Kiev.

“Gas will start to flow again fairly soon,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “Both Russia and Ukraine want cash and they know that if no gas is flowing they won’t get paid.”

Both Miller and his counterpart at NAK Naftogaz Ukrainy, Oleh Dubina, flew to Brussels today as the European Union sought to broker an end to the dispute that’s affected supplies to at least 20 nations. Miller said they would both take the same plane back.

‘Totally Crazy’

Describing the current situation as “totally crazy,” Miller said the priority is to “resume prompt deliveries via Ukraine so gas can reach European consumers.”

Naftogaz said it’s ready to “guarantee 100 percent” of Russian gas transit supplies to Europe. Ukraine’s Deputy Prime Minister Hryhoriy Nemyrya said EU monitors will arrive in the country tomorrow.

Russia is ready to pay $3.40 per 1,000 cubic meters of gas over 100 kilometers (62 miles), up from $1.70, Putin told reporters today. Moscow had previously rejected higher charges.

Russian President Dmitry Medvedev spoke with his Ukrainian counterpart Viktor Yushchenko by phone yesterday, the first high-level contact between the two sides since negotiations broke off on Dec. 31. Medvedev said Ukraine should pay the full market price for its gas and clear its debt with Russia. Each side blamed the other for the shutdown of the transit route.

Ruble, Hryvnia Rally

Russia’s ruble and Ukraine’s hryvnia rallied against the euro following the resumption of talks.

French President Nicolas Sarkozy and German Chancellor Angela Merkel urged Russia to renew shipments of gas to Europe. Russia must “respect” its contractual commitments, Sarkozy told a joint press conference in Paris today. “Russia has to hold to its obligations,” Merkel said.

Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. The Russian exporter, which provides a quarter of Europe’s gas, said its overall deliveries to Europe were cut by about 60 percent yesterday.

“Russia’s motivation isn’t exclusively financial,” David Hauner, a London-based economist at Bank of America Corp., said in a Bloomberg Television interview today. “In this tough time for the Russian government, with lower oil prices and a weaker ruble, they want to show strength. That always comes across well with the public.”

Supply Shortfalls

Ukraine, Romania, Bulgaria, Greece, Turkey, Macedonia, Serbia, Czech Republic, Slovakia, Bosnia-Herzegovina, Slovenia, Austria, Hungary, Italy, Croatia, Moldova, Turkey, Poland, Germany and France have all registered supply shortfalls since the cutoff.

The market is still “broadly pricing in a near-term solution to the crisis,” UniCredit SpA said today in an e- mailed note. Industrial stoppages “would spread relatively rapidly if gas supplies remain limited,” it added.

Bulgaria may be “at risk” with regard to gas reserves, with levels at less than 10 days of average consumption, UniCredit said.

RWE Transgas, the Czech Republic’s biggest natural-gas trading company, said domestic fuel supplies remain sufficient even as supplies from Russia remain stopped for a second day.

Hungary partially lifted gas use restrictions though it said it would reimpose them if needed, according to a statement from Mol Nyrt., the country’s biggest refiner.

OMV AG, Austria’s largest oil and gas producer, said today it’s still not receiving gas from Russia.

Italy has enough gas reserves for the next two months and the country relies less on imports from Gazprom than others in Europe, Edison SpA Chief Executive Officer Umberto Quadrino was cited as telling Il Giornale in an interview.

No Gas

Ukraine’s gas transportation system is stable and no gas is arriving from Russia, Naftogaz Deputy Chief Executive Officer Volodymyr Trikolich said. Naftogaz is supplying gas only to customers in Ukraine, he told a press conference today in Kiev.

Gazprom delivered about 170 million cubic meters of gas to Europe yesterday, compared with 420 million to 450 million cubic meters a day normally, Deputy Chief Executive Officer Alexander Medvedev said on a conference call yesterday. Gas is being supplied through Belarus and from underground storage.

In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, and also cut shipments by 50 percent last March during a debt spat.

Russia cut shipments intended for Ukraine’s domestic market Jan. 1, and accused Ukraine of siphoning off gas destined for other buyers. Gazprom has warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues.

Raised Demands

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine, reflecting the average price in countries bordering Russia’s neighbor. Ukraine, which paid $179.50 for Russian gas last year, rejected a Gazprom offer last week of $250 for 2009 and says $201 would be fair.

Gazprom is still owed $615 million by Ukraine, Medvedev said earlier this week in London.

Ukraine’s political leaders, Yushchenko and Prime Minister Yulia Timoshenko, are grappling with a financial crisis that has forced it to seek a $16.4 billion International Monetary Fund bailout.

The ruble gained 2.9 percent to 40.3863 per euro in limited holiday trading today, from 41.6079 yesterday, in Moscow. The hryvnia increased 2.3 percent per euro to 11.1372, from 11.4155 yesterday.

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