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Ukraine Says Sanctions May Force EU to Buy Gas at Russian Border

Ukraine may seek to force European consumers to buy natural gas at its eastern border, striking at Russia’s biggest company, OAO Gazprom.

Ukraine may ban transit by “certain companies,” while allowing “counterparties” that sign deals directly with its national pipeline operator to maintain flows, oil and gas monopoly NAK Naftogaz Ukrainy said today in an e-mailed statement. Lawmakers will vote on imposing sanctions against Russian companies tomorrow, before a final list is approved.

As Ukraine makes final preparations to oust armed pro-Russian separatists in its east, the government is threatening to ban Russian companies and halt their deliveries of natural resources to the European Union, following sanctions by the U.S. and the EU. Gazprom, the world’s biggest gas producer, ships about half its exports across Ukraine to Europe.

“If sanctions are put into effect, Naftogaz will continue to transit Russian gas provided that the EU buys it at Ukraine’s eastern border with Russia,” Naftogaz Chief Executive Officer Andriy Kobolyev said in comments provided by his press office.

The U.S., the EU and their allies widened sanctions to include Russia’s banking and oil industries, seeking to punish President Vladimir Putin for what they say is stoking a military conflict that has cost Ukraine more than 500 soldiers since mid-April and put pressure on bonds and currency.

‘Blocking Gazprom’

The EU would oppose moves by Ukraine’s government to cut-off transit of Russian natural gas, a European Union official told reporters in Brussels on conditions of anonymity today before Naftogaz issued the statement. Secure supplies “must be maintained,” the official said.

“Ukraine is stepping in actually blocking Gazprom transit,” Emily Stromquist, Eurasia Group’s analyst for global energy and natural resources, said by phone. “This will be very upsetting both for the EU and the Central and Eastern European states that are dependent on this gas delivery. The approach is more a punishment for Europe than for Russia.”

The sanctions will target Russian companies, not specific resources, Energy Ministry Yuri Prodan told Bloomberg by phone today. The National Security and Defense Council will approve a final list, he said.

Gas Disputes

Ukraine would benefit if European consumers agree to pay for gas transit across its territory, Oleksandr Parashchiy, head of research at Concorde Capital investment company, said by phone from Kiev today. The country could buy natural gas for storage from European companies at the Russian border at a lower price than it was paying Gazprom, he said.

Ukraine stopped receiving Russian gas on June 16 during a dispute over its debt for previous deliveries. Ukraine has sought to revise the terms of a 10-year supply and transit contract signed by Gazprom and Naftogaz in 2009 to resolve a previous disagreement which led to supply disruptions in Europe. Ukraine is seeking to increase purchases of gas from the EU, which relies on Russia for a third of its own supplies.

The country will manage at least until the end of the year without Russian shipments by using stored gas and reducing consumption, according to Kobolyev.

Ukraine has been slowly increasing the amount of gas in its underground storage, reaching 15.1 billion cubic meters as of last week, according to pipeline and storage operator, UkrTransGas, a unit of Naftogaz.

U.K. natural gas for winter delivery dropped from almost a two-month high as Ukraine said it will remain a reliable transit partner for Europe and allow some companies to use its pipeline if it applies sanctions against Russia.

The sanctions bill up for a vote tomorrow was approved by the cabinet last week. It would allow the government to apply 26 types of penalties, including asset freezes and bans on participation in state asset sales, and includes a list of 65 companies, mostly Russian, and 172 individuals against whom penalties might be imposed.

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