Ukraine Plans to Cut Russian Gas Imports, Raise EU Supply

Ukraine, the subject of a struggle for influence between Russia and the West, plans to cut natural-gas imports from its eastern neighbor and fill the gap with supplies from Europe to reduce dependence on OAO Gazprom. (GAZP)

Ukraine will need to import about 30 billion cubic meters of gas this year, of which a third may come through Slovakian pipelines, Energy Minister Yuri Prodan said today in Kiev.

Prodan’s remarks follow a decision by Moscow-based Gazprom, which accounts for most of Ukraine’s gas imports, not to extend a price discount beyond April, citing unpaid debts for supply. Tensions between Russia and Europe and the U.S. have escalated since President Vladimir Putin sent troops into Crimea in a bid to regain influence over Ukraine following the overthrow of Kremlin-backed President Viktor Yanukovych last month.

Ukraine has reached a preliminary agreement with Slovakia to import 10 billion cubic meters of gas a year from various European Union countries through Slovakian pipelines, Prodan told reporters. It also has signed a deal with German utility RWE AG for 5 billion cubic meters a year, he said, without giving a start date for supply.

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RWE Chief Financial Officer Bernhard Guenther said this week that the Essen-based utility may be able to supply Ukraine in the event of a shortage. Michael Murphy, a company spokesman, declined to comment further when contacted by phone today.

Prodan will travel to Brussels for energy talks with EU officials on March 19.

Slovakia Shipments

“It hasn’t been possible to import gas via Slovakia in the past,” he said today. “Hopefully there will be companies with which we’ll try to agree” on supplies, in addition to imports from Slovakia and Germany, he said.

The EU will help Ukraine diversify its imports and provide funding to upgrade its pipelines, the bloc’s regulatory arm said today in a statement. The European Commission also backs the use of “reverse-flow corridors” via Bulgaria, Romania and Croatia, whereby pipes that send gas west switch direction, or some fuel earmarked for those countries is sent directly to Ukraine.

Ukraine imported almost 28 billion cubic meters of gas last year, of which more than 90 percent came from Gazprom. Russia has said it’s considering lending $2 billion to $3 billion to its neighbor to pay off debts of about $2 billion to the state-controlled producer.

Securing more gas from elsewhere will depend on price, according to Energy Strategies Fund Co-Chairman Dmytro Marunich, who said “only a mad person” would get all its fuel from Gazprom if it can be bought more cheaply from Europe. Gazprom would oppose any Ukrainian move to increase imports from the EU by proposing discounts and using political pressure, he said.

Ukraine received gas from Poland and Hungary in 2013. Russia last year agreed to cut the price it charges Ukraine by about a third to $268.50 for every 1,000 cubic meters.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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