Russia-Ukraine Gas Talks Focus on Price

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Russia is parrying Ukraine’s demands for a natural-gas accord with the European Union through the heating season as it maintains an offer to temporarily hold prices unchanged from July 1.

Russia sees no need for new accords as it will bill Ukraine using the third-quarter price set Monday, Russian Energy Minister Alexander Novak said before the talks with his Ukrainian counterpart, Volodymyr Demchyshyn, and the European Commission’s vice president for energy union, Maros Sefcovic.

“We’ll deliver as much gas as they pay for in advance,” Novak said on state television channel Rossiya 24.

Russia is reducing the discount it offers Ukraine by 60 percent for the three months starting Wednesday, after the current accord expires. That will leave gas prices, which have dropped in Europe, at the same level as this quarter.

Demchyshyn, whose government has signaled it was looking for a lower price, told reporters before the talks that the Ukrainian delegation hadn’t made a final decision.

Russia has rejected Ukraine’s call for an intergovernmental accord, Interfax reported, citing an unidentified person in Ukraine’s delegation.

The goal for Ukraine and the EU is to reach a bridging deal that would stay in place until an arbitration court decision on a dispute between OAO Gazprom and NAK Naftogaz Ukrainy, or at least through next winter. The court in Stockholm is expected to issue its verdict in late 2016 or in 2017.

Supply Disruption

Naftogaz has insisted Ukraine, Russia and the EU sign a trilateral protocol that confirms the gas agreements. Naftogaz also wants Gazprom to sign an addendum to their gas accord, according to a statement Tuesday from the Ukrainian company via Facebook.

Talks on a new package are mired in politics amid a deadly, more than a year-long conflict with pro-Russian separatists in eastern Ukraine. The Moscow-based company said last week that Naftogaz owes it $212 million for 704 million cubic meters of gas supplied to eastern Ukraine. Ukraine rejects demands to pay for gas delivered to rebel-held territories, saying it cannot control how much they imported.

An agreement between the two former Soviet allies would reduce the risk of supply disruption for the EU, which gets 10 percent of gas through pipes crossing Ukraine from Russia. Payment disputes between Russia and Ukraine disrupted transit flows to Europe in 2006 and 2009 during freezing weather.

The EU has brokered two interim deals between the countries since October. Under Russia’s third-quarter offer, Gazprom will continue to demand prepayments and waive a requirement for minimum volumes under a take-or-pay clause, according to Novak.

Ukraine is asking for the intergovernmental accord to get financial aid from Brussels for gas purchases, said Alexey Grivach, deputy head of National Energy Security Fund, a Moscow-based consulting company.

Reduced Discount

The government in Moscow on Monday agreed to lower the contract rate by about $40 per 1,000 cubic meters during the third quarter, down from $100. That would leave the price, which is linked to oil prices, unchanged against the current quarter at about $247.

While Ukraine can cope without Russian gas in the summer months starting in June, it must increase imports and spend at least two months refilling underground storage before the next cold season. The cost for Ukraine of adding about 7 billion cubic meters of gas to its current stockpiles is equal to $1.7 billion using the Russian gas price.

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