Gazprom asks Russia to extend Ukraine gas discount until July

By ELENA MAZNEVA
Bloomberg

Russia is weighing natural-gas exporter OAO Gazprom’s request to extend a discount for Ukraine by three months before a price agreement expires Tuesday amid a lull in a yearlong conflict in the neighboring country.

“The Russian government will prepare a decision in the near future,” Energy Minister Alexander Novak told state television. “The issue will be solved as soon as possible.”

Ukraine plays a key role in the European Union’s energy security as Russia uses its pipelines to supply more than 10% of the 28-member bloc’s gas needs. The former Soviet republics are planning to hold EU-brokered energy talks in mid-April, while Ukraine warned last week it might halt gas imports from Gazprom if a new price accord isn’t signed.

Deliveries to Ukraine were halted for six months last year over a pricing and debt dispute, as Russia’s relations with its neighbor, the US and the EU slumped to a post-Cold War low.

“Moscow probably doesn’t want to worsen the climate for political talks,” said Vasily Kashin at the Center for the Analysis of Strategies and Technologies in Moscow, adding that warmer weather lowers the leverage Russia has in gas talks. “Nevertheless, things may change completely in five minutes as usual, if Ukraine does not behave like Russia expects it to do.”

EU-Brokered Deal

Russian Energy Ministry received a request on extending Ukraine’s gas discount from the European Commission on Friday, Novak said.

Gazprom re-addressed a request from Ukraine’s energy company NAK Naftogaz Ukrainy to the Russian government, which is responsible for a decision on extending the current discount, said Sergei Kupriyanov, the spokesman for the state-run exporter. Russia reduced the price Naftogaz pays by lowering the Gazprom’s export duty.

“Gazprom sent a letter to the government today,” CEO Alexey Miller said in comments shown on Russian state television. “We believe a three-month term is optimal” with the summer season coming and high volatility in global gas prices now, he said.

The government in Moscow will consider an extension after trilateral talks, Prime Minister Dmitry Medvedev said March 18. The country may reduce Ukraine’s gas price retroactively once a new agreement is reached as the talks are likely to continue after the current accord expires April 1, two people in Moscow with knowledge of the matter said last week.

The government will make a decision on the discount in time, taking the expiration date into account, Interfax reported, citing Medvedev’s spokeswoman, Natalya Timakova.

EU Steps

Naftogaz needs to store a minimum of 12 billion cubic meters of gas before the heating season, Novak said Monday. That is equivalent to about $3 billion at the price Russia may charge Ukraine in the second quarter if the discount is extended, based on both country’s estimations.

Russia expects EU to take steps as well to help Ukraine purchase gas if needed, Novak said.

In October, Russia agreed to decrease Ukraine’s gas price by as much as $100 per 1,000 cubic meters, or about 30% of the cost, in an EU-brokered interim deal to keep gas flowing during the heating season. Ukraine resumed imports in December after deliveries stopped in June.

The coming round of energy negotiations is being planned as casualties have waned in the fight between the government troops and pro-Russian separatists in eastern Ukraine following a cease-fire pact signed in February.

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