RWE Starts Ukraine Gas Supplies After Russia Price Increase

RWE AG started supplying natural gas to Ukraine from Europe after a price increase by OAO Gazprom (GAZP) made it cheaper than Russian fuel.

Supplies resumed today to Ukraine from its European portfolio via Poland based on the region’s wholesale prices including delivery costs, Essen, Germany-based RWE said in an e-mailed statement. Gazprom, the Russian gas exporter, canceled discounts it had offered to Kiev earlier this month, boosting the cost of Ukraine’s Russian fuel by 81 percent.

The deal follows escalating tensions between Russia and Western nations over Ukraine, which faces its third recession since 2008 after months of protests led to the change of the government in Kiev in February. A mounting debt for past gas supplies from Gazprom forced Russian President Vladimir Putin last week to threaten to halt shipments to Ukraine. European supplies are about a third cheaper than Russian gas in Ukraine.

“European markets at the moment are obviously more attractive to Ukraine,” Helmut Weintoegl, a spokesman at RWE, said by telephone from Essen. He declined to give details on prices, timeframes and volumes for the supply deal.

NAK Naftogaz Ukrainy has physical capacity to import about 4 million cubic meters of gas from Poland daily, the Kiev-based company said in an e-mailed statement today, without disclosing contract details. That is around 3 percent of Ukrainian average daily consumption last April, while gas imports from Russia were 64 million cubic meters on April 13, Ukrainian and Russian energy ministry data show.

Reverse Mode

Ukraine, which depends on Russian gas for about half of its domestic needs, is seeking to diversify by buying gas from Slovakia, Poland and Hungary using east-west pipelines in a so-called reverse mode.

Capacity to Ukraine via the Hermanowice exit point is allocated using auction procedures, Gaz-System SA, the Polish gas transmission system operator, said on its website late yesterday. Available capacity “may be interrupted or limited due to the terms of gas distribution in the Polish and Ukrainian networks,” it said.

Slovakia offered to ship gas to Ukraine through the Vojany pipeline, which is currently idle and has an annual capacity of as much as 10 billion cubic meters, spokesman Stanislav Jurikovic said today after the two nations’ energy ministers met to discuss reverse flows. Ukraine isn’t satisfied with the proposal, which would enable the flows in November, saying it lacks the needed capacity, he said.

Dutch Gas

Gazprom will charge Ukraine $485 per 1,000 cubic meters of gas from this month, up from $268.50. Next-month Dutch gas, a benchmark for mainland Europe, fell 1.1 percent to 21.63 euros a megawatt-hour ($298 per 1,000 cubic meters) at 5:29 p.m. London time, according to broker data compiled by Bloomberg.

Naftogaz owes more than $2.2 billion for Russian gas, including for supplies received under the discounts.

RWE is supplying the fuel through a framework agreement signed in May 2012 that enables the company to ship as much as 10 billion cubic meters of gas to Ukraine a year. The German utility supplied about 1 billion cubic meters last year before supplies halted as Russian gas became cheaper when a discount was introduced in December. That benefit was scrapped this month, along with another discount that was provided in 2010.

To contact the reporters on this story: Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Dan Weeks, Sharon Lindores

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