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New gas conflict between Russia and Ukraine

February 24, 2012, 14:47 UTC+3
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Russia and Ukraine face a new gas row. This time it was caused by undersupplies of Russian gas to Europe during the cold wave. Having accused Naftogaz Ukrainy of siphoning off transit gas intended for Europe, Gazprom has pledged to fully stop pumping its gas via Ukraine after the South Stream gas pipeline is launched. It will be launched no earlier than in 2015, but Kiev is already losing part of transit gas after the commissioning of the Nord Stream.

At a meeting with Russian President Dmitry Medvedev last Wednesday, Gazprom CEO Alexei Miller said that during the cold spell in February, Ukraine was siphoning off gas intended for Europe, Kommersant daily writes. On “certain days” that amount reached 40 million cubic meters, Miller stressed. The president urged Miller to settle the dispute with Ukraine “within the framework of corporate procedures and legal agreements” and “speed up the construction of the South Stream” (to the European Union in bypassing Ukraine). After the meeting with the president, Gazprom pledged that Ukraine will be expelled from the scheme of Russian gas deliveries to Europe after the commissioning of the South Stream pipeline.

South Stream must be launched in 2015, the newspaper writes, but Ukraine can lose sizable amount of transit gas much earlier owing to the launch of another Russian gas pipeline to Europe - Nord Stream, that goes on the bottom of the Baltic Sea.

Ukraine categorically dismisses Gazprom’s accusations. Moreover, its Prime Minister Nikolai Azarov pledged that on cold days Ukraine used gas from its underground gas storage facilities to ensure the necessary amount of gas transit to Europe.

Under their agreement, Gazprom and Naftogaz Ukrainy take their disputes to the Stockholm international arbitration court. However, the conflict will not be taken to court, Kommersant’s sources on both sides believe.

On Wednesday, Medvedev instructed Gazprom to draw up the final project documentation and begin the construction of the South Stream proceeding from the maximal capacity of 63 billion cubic meters, Vedomosti noted. The consolidated project feasibility study, including the sea section of the pipeline and sections that will run across countries of Southeastern and Central Europe, is finished, Miller said, pledging to begin the South Stream construction in December.

Up till now Gazprom has linked decisions for the South Stream with talks with Ukraine on the use of gas transmission network. Depending on their outcome, the capacity of the pipeline could be reduced, the date of its construction postponed or cancelled at all, a source close to Gazprom told the newspaper.

Cuts in transit across Ukraine to zero after the construction of new pipelines will certainly reduce Gazprom’s risks in supplies to Europe, the newspaper cited UBS analyst Konstantin Cherepanov as saying. However, the economic expedience of such a decision is disputable, as new routes will replace the traditional one and will not be an addition. Thus, returns will not grow significantly, while investments will grow, the analyst explained. The construction of the South Stream is estimated at about 30 billion dollars.


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