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Russia to Charge Ukraine More Than Germany as Gas Discounts End

Russia is raising Ukraine’s natural gas price 81 percent this month, reaching a level higher than for any European Union nation and increasing the risk of a “gas war” affecting shipments to the bloc.

The price will “automatically” jump to $485 per 1,000 cubic meters this month after the government annulled an export-duty exemption for OAO Gazprom (GAZP) in place since 2010, Alexey Miller, chief executive officer of the Moscow-based exporter, said today in televised comments. It was the second discount deal Russia canceled this week.

Ukraine relies on Gazprom for half its gas, while carrying about 15 percent of Europe’s demand through its pipelines from Russia, making it a linchpin in the continent’s energy security. On April 1, Gazprom overturned a discount it awarded to Ukraine last year after ousted President Viktor Yanukovych pulled out of a European Union cooperation accord. The new government in Kiev has since signed political parts of the agreement.

“Ukraine will probably keep paying the price it thinks is fair, as it has in the past,” Alexander Paraschiy, an analyst at Concorde Capital in Kiev, said by phone. “After a while, Gazprom may announce it’s cutting supplies and that will immediately raise the question of a new gas war and risks to transit shipments to Europe.”

Gas Disruptions

Gazprom also warned in a statement earlier today that Ukraine’s gas reserves in underground storage facilities have dwindled significantly, raising concerns about potential disruptions in gas transit to Europe. Gazprom has cut sales to Ukraine more than twice in the past eight years over price disputes, including a disagreement in 2009 that interrupted supplies to Europe for about two weeks during freezing weather.

Gazprom’s largest EU customers -- Germany and Italy -- paid 18 percent to 25 percent less than the price Miller announced for Ukraine today, according to European data reported by the Interfax newswire this month. Ukraine owes more than $2.2 billion for Russian gas supplies from 2013 through March, Miller said. The payment deadline for last month’s supplies is April 7.

Ukraine is “ready” to borrow $2 billion dollars from Russia to pay down its gas debt to Gazprom, Ukraine’s Energy Minister Yuri Prodan told reporters today in Kiev. Ukraine wants to return to the $268.50 it was paying last quarter, he said.

‘Cooperative Relations’

NAK Naftogaz Ukrainy must take immediate steps to repay its debt or Russia won’t be able to cooperate with Ukraine, Prime Minster Dmitry Medvedev said during the televised meeting with Miller.

“We would like to continue cooperation with Russia, but these relations must be cooperative,” Prodan said. The minster also called for negotiations on gas transit fees that Russia pays to Ukraine, and denied that gas storage levels are at a critically low level.

The EU will send a team to Ukraine to assess the nation’s gas storage capacity, an EU official told reporters yesterday. Ukraine has used stored gas over the past months to save money, which means inventories will be reduced this winter, the official said.

Ukraine, backed by the EU and the U.S., is seeking alternative gas sources to cut dependence on Russia, the world’s biggest gas exporter, Prodan said, adding that he plans to meet with Chevron Corp. and Royal Dutch Shell Plc tomorrow, both of which have shale gas projects in Ukraine.

Six international traders have shown interest in supplying gas to Ukraine, and the country may buy gas in Europe for $388 to $400 per 1,000 cubic meters, Prodan said. The country may be able to import 20 billion cubic meters of gas from Slovakia using a pipeline “in reverse,” while Ukraine may need to import about 30 billion cubic meters of gas this year in total, he said.

Naftogaz has until May 7 to pay for its April supplies from Russia, giving Ukraine time to complete financing deals with the International Monetary Fund and talks with Slovakia, which would ease the pressure, Paraschiy said. “The situation can change, so a compromise with Russia is still possible.”

To contact the reporters on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

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

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