• *Agreement on gas supplies through March needs final sign-off
  • *Ukraine says it has money to resume Russian gas imports

Ukraine reached a deal with Russia to ensure it will get natural gas supplies in the winter season through March and avoid the risk of disruptions in transit to the European Union.

The agreement gives Ukraine a price discount determined quarterly, with the final rate to be close to the one for neighboring Poland, Russian Energy Minister Alexander Novak said. It will cover the heating season starting in October, according to Maros Sefcovic, European Commission vice president for energy Union.

The accord, initiated late on Friday, still needs to be formally approved by governments in Kiev and Moscow.

“Once implemented, the winter package will lay the ground for smooth gas deliveries from Russia to Ukraine and, consequently, also through Ukraine to the European Union,” Sefcovic, who hosted the talks in Brussels, told reporters. “This is a crucial step toward ensuring that Ukraine has sufficient gas supplies in the coming winter.”

The EU was trying to get the two former Soviet allies to resume gas flows halted in July over a pricing dispute. The 28-nation bloc gets about 10 percent of its gas through Ukrainian pipelines from Russia. Its eastern members suffered shortfalls at least twice in the past decade during similar standoffs between Russia and Ukraine.

Government Decree

Russia will offer Ukraine gas at about $227 per 1,000 cubic meters (35,300 cubic feet) through December, according to a decree on the government’s website Friday. Gazprom has estimated the price before a discount at $252.

“The Ukrainian party secures transit during the winter period and the EU will ensure the organization of financing on behalf of various international financial institutions,” Novak said. The European Commission said that at least $500 million under that aid should be available by the end of this year.

The EU helped broker two interim gas deals after supplies were halted for six months last year as Russia and Ukraine turned to arbitration to resolve disputes over pricing and debt terms under a contract due to expire in 2019. The EU and Ukraine want to ensure gas flows until a ruling in the arbitration case, expected by around the middle of next year at the earliest.

Freezing Weather

While Ukraine could cope without Russian gas in the summer by importing the fuel from the EU, it needs to boost shipments to replenish stocks before demand jumps during freezing seasonal weather. Under the deal agreed today, Ukraine committed to injecting 2 billion cubic meters of gas into underground storage next month.

Ukraine already has $500 million available to resume Russian gas imports and store the fuel, according to Energy Minister Volodymyr Demchyshyn. The country will start purchases once the three-way deal gets the final approval, he told reporters. The formal sign-off is possible within a week, RIA Novosti quoted him as saying.

Ukraine had 15.4 billion cubic meters in storage as of Sept. 23, according to the national pipeline operator. It needs at least 19 billion, Novak and Gazprom have been saying since August.

Imports Resumption

The Moscow-based exporter expects Ukraine to resume Russian gas imports from Oct. 1 and doesn’t rule out that a price in January to March would be lower than the one for the fourth quarter, its head Alexey Miller said after the meeting, according to RIA.

The Ukrainian economy is suffering following armed conflict with pro-Kremlin insurgents in the east of the country. Meanwhile, Russia is in a slump after international oil prices crashed and the U.S. and EU imposed sanctions against the country over its support for the Ukrainian rebels.

“Ukraine needs the gas, Russia needs the cash,” said Sijbren de Jong, an analyst at the Hague Centre for Strategic Studies.

For more, read this QuickTake: Russian Gas

Before it's here, it's on the Bloomberg Terminal. LEARN MORE