Russia Halts Natural Gas Supplies to Ukraine as Payments End

  • Gazprom will resume supply when Ukraine pays for more fuel
  • Ukraine said no need for Russian gas now given low consumption

Russia halted natural gas supplies to Ukraine after its western neighbor said it wouldn’t buy more this year amid ample supply.

Ukraine’s NAK Naftogaz Ukrainy received its final prepaid volumes of Russian gas on Wednesday, Alexey Miller, chief executive officer of Gazprom PJSC, said in a statement, warning that the halt could threaten supplies to the rest of Europe during freezing weather. The European Commission said transit isn’t a concern at the moment, while Ukraine said it will keep shipping fuel to Europe strictly in line with the transit contract.

“During the past 18 months, we have demonstrated that we can ensure stable transmission of Russian gas regardless of whether we get it for Ukraine or not, both in the summer and the winter seasons,” Naftogaz CEO Andriy Kobolyev said in an e-mailed statement. “At this time a year ago we did not buy any gas from Russia, having less gas in storage and smaller import capacities from the EU.”

EU Flows

Eastern members of the European Union, which receives about 10 percent of its gas from Russia through Ukraine’s pipeline network, suffered winter shortfalls in 2006 and 2009 following payment disputes between Gazprom and Naftogaz. Such cuts are unlikely this time as Ukraine reduced its dependence on Russian gas and Gazprom decreased its reliance on transit through its neighbor, according to analysts.

“We’re not particularly concerned about the gas flows from Russia to Ukraine at the moment,” European Commission energy spokeswoman Anna-Kaisa Itkonen told reporters in Brussels Wednesday.

Ukraine can “easily” cope without Russian gas at least until the end of the year, said Alexander Paraschiy, a Concorde Capital analyst in Kiev. That would allow it to purchase cheaper fuel in the first quarter following a slump in commodities prices, he said. Ukraine’s lower gas usage means it doesn’t need more Russian gas this year, according to Energy Minister Volodymyr Demchyshyn on Monday.

Storage Levels

Ukraine has 16.5 billion cubic meters (580 billion cubic feet) of gas in storage as of Tuesday, 13 percent more than on the same day last year, according to data from Gas Infrastructure Europe. Dutch gas for next year, a European benchmark, climbed a second day, gaining 0.3 percent Wednesday, according to broker data compiled by Bloomberg.

Ukraine, reliant on Russian gas for more than 20 percent of its needs this year, halted imports from Gazprom in July because of a pricing dispute before resuming shipments in October to refill underground storage sites. Supplies restarted after the European Commission brokered an interim deal between the former Soviet allies. An international arbitration panel is to rule on their gas supply contract in mid-2016 at the earliest.

Russia and Ukraine plan to reach another EU-brokered deal by year-end, which will set prices for the first quarter. Gazprom won’t deliver gas until Ukraine advances more money, according to Miller’s statement. Naftogaz said further payments would depend on consumption.

Disputes between the governments in Moscow and Kiev flared up this week after power supplies to Crimea from Ukraine halted after sabotage on the cables to the Russian-annexed peninsula. Russia may seek reprisals as Ukraine delays restoring the power supplies, Russian Energy Minister Alexander Novak said Tuesday.

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