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Experts: Ukraine has to seek compromise in gas dispute with Russia ahead of winter season

August 05, 2015, 18:21 UTC+3 Zamyatina Tamara
© TASS/Valeriy Sharifulin

MOSCOW, August 5. /TASS/. Ukraine’s national energy company Naftogaz will have to seek a gas price compromise with Russia’s Gazprom in order not to freeze Ukrainian citizens together with European consumers in the upcoming winter, experts polled by TASS said on Wednesday.

A new round of gas talks between Russia and Ukraine with the EU’s mediation will be held in late September.

The participants in the three-party talks in Vienna failed to reach agreement in June on the terms of further gas deliveries and Russia stopped supplying natural gas to Ukraine from July 1.

In the first and second quarters of this year, Ukraine enjoyed a discount of $100 per 1,000 cubic meters to the contract gas price. As a result, the final gas price stood at $247.2 per 1,000 cu m. Oil prices declined considerably in the second half of last year, bringing gas prices down as well. In this situation, Russia said it could no longer offer Ukraine a $100 discount. Moscow said the final discount for Ukraine would be only $40 per 1,000 cu m but the gas price would remain at $247.12, i.e. at the level of the second quarter. However, this price did not suit Ukraine.

As of early August, Ukraine’s underground gas storage facilities have about 13 billion cubic meters of natural gas. According to Naftogaz CEO Andrei Kobolev, considering the gas reserves required for uninterrupted gas transit to Europe, Ukraine’s underground storage facilities should have 19 billion cubic meters of natural gas as of the end of October. Kiev needs over $1 billion to purchase the missing 6 billion cubic meters from Gazprom. However, Brussels is in no hurry to provide a loan to Ukraine. Prime Minister Arseniy Yatsenyuk said the situation with preparations for the upcoming winter was disastrous.

The issue of energy supplies from Russia to Ukraine has become the subject of a big political game, Deputy Director of the Institute of CIS Countries Vladimir Zharikhin said.

"If Kiev politicians were independent, the gas dispute between Ukraine and Russia would have long been resolved. But Washington orders Kiev not to buy fuel from Gazprom to undermine the Russian budget," the expert said.

US President Barack Obama said early this year that "the Russian economy is torn to pieces as a result of sanctions. The refusal by Naftogaz of Ukraine in June to purchase Russian gas amid the collapse of the Ukrainian energy sector confirms that Kiev acts on instruction from the US White House to the detriment of its own interests," Zharikhin said.

"But there is no and can be no other gas in Ukraine except the Russian gas because fuel supplied in a reverse mode from the territory of Slovakia or Hungary is also of Russian origin. That is why, Kiev will have to seek a pricing compromise with Gazprom. As before, the forthcoming tripartite talks of Ukraine, Russia and the EU in September won’t be able to do without political demagogy but the approaching winter will make Kiev more compliant and the EU will also exert pressure on Naftogaz," the expert said.

In 2011, the Ukrainian authorities jailed former Prime Minister Yulia Timoshenko for allegedly signing a disadvantageous gas contract with Russia, which continues to be in force, the expert said.

"The contract pegged the gas price to world oil prices. But the price of oil at that time was more than $100 per barrel and now is stays within $50. That is, the current scheme is advantageous for Ukraine," he said.

"Russia gave a discount of $100 per 1,000 cubic meters, on which Kiev insists, to the previous Ukrainian authorities with a view to support the integration economy of both countries. But giving a discount to the current Ukrainian leadership only because Kiev has no money to make advance payments for Russian gas supplies is illogical from the economic standpoint," Zharikhin said.

Kiev’s demand that Gazprom keep the discount of $100 per 1,000 cubic meters is unjustified, said Vladimir Averchev, an energy market expert and a member of the Valdai International Discussion Club and formerly director of analysis at BP Russia.

"If the oil price has fallen by two times, bringing the gas price down, then the size of the discount should also fall. Kiev is displaying incomprehensible stubbornness, a mixture of provincialism and populism. Whatever Prime Minister Yatsenyuk may say, he has no alternative: he will be forced to buy Russian gas either in a reverse supply mode from Europe or directly from Gazprom," Averchev told TASS.

"The years-long practice of negotiations between Naftogaz and Gazprom evidences that Kiev advances tough conditions to Moscow in summer, considering a sharp decline in production, especially in metallurgy and the chemical industry, because Ukraine’s requirements for gas are small in the warm season. Closer to winter, Kiev normally becomes more compliant under the pressure of Brussels and Moscow as was seen on many occasions in the past, up until December 31. This is what we’ll see again," the expert said.

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