Ukraine Resumes Talks With Gazprom With Supply Cut on Horizon

OAO Gazprom, the world’s biggest natural gas producer, is holding negotiations with Ukraine today to resolve a price dispute after postponing a deadline for Kiev to settle its debts or face a supply cutoff to next week.

A Russian gas cutoff is “still on the agenda,” Ukrainian Prime Minister Arseniy Yatsenyuk told lawmakers today in Kiev, saying he hopes an agreement will be reached this week. Executives from Gazprom and state energy company NAK Naftogaz Ukrainy are meeting in Berlin, he said.

While Russia and Ukraine remain at loggerheads over the annexation of Crimea and increasingly violent separatist movements in eastern Ukraine, Gazprom yesterday gave Naftogaz an extra week before demanding payment upfront. The European Union, which imports 30 percent of its gas from Russia, half through Ukraine’s pipelines, is pushing for the former Soviet allies to resolve their dispute to avoid any disruptions.

“We need to reach a deal with Ukraine,” Sergei Kupriyanov, Gazprom’s spokesman, said today in Moscow. The company must “avoid being spineless,” and at the same time remain “flexible,” he said.

Commercial negotiations with Ukraine will be bilateral, while the European Union will provide political consultations in three-way discussions, Kupriyanov said. Three-way discussion ended yesterday in Brussels with Russia and Ukraine considering setting a gas price for the next 12 months, according to EU Energy Commissioner Guenther Oettinger.

First Step

The first step should be Ukraine paying $1.45 billion of outstanding debts for the last two months of 2013 and starting settlements for gas received in April and May, Kupriyanov said. Gazprom received $786 million from Ukraine yesterday for February and March supplies.

Ukraine still hasn’t paid for 9.84 billion cubic meters of gas supplies, including more than 3.5 billion cubic meters imported in May, according to Kupriyanov.

The country needs to add 7 billion cubic meters of gas to the 12 billion already stored before the heating season begins, Yatsenyuk said.

Before yesterday’s talks, Gazprom shifted the deadline for Ukraine to either pay its debt or move to advance payments from June 2 to June 9, indicating it may move the deadline again.

In April, Gazprom raised Ukraine’s gas price 81 percent to $485 per thousand cubic meters, higher than for any EU member, citing a contract signed in 2009 as justification. Ukraine has refused to pay the higher price, seeking a return of its first-quarter price of $268.50 per 1,000 cubic meters.

“There may be some fluctuation around $268,” Yatsenyuk said today. If the sides don’t agree, Ukraine will stick to its plan of filing a Stockholm arbitration case against Gazprom.

Gazprom’s Kupriyanov declined to disclose a possible price for Ukraine, saying the company is looking for a long-term, comprehensive agreement.

“You say their side is insisting on this price,” he said. “You don’t know what they’re insisting on, because you only know what they say publicly.”

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