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Russia Says Gas Flowing Again Into Ukraine

Gazprom CEO Aleksei Miller (right) and the head of Naftohaz, Oleg Dubina, after a signing ceremony in Moscow on January 19

Gazprom CEO Aleksei Miller (right) and the head of Naftohaz, Oleg Dubina, after a signing ceremony in Moscow on January 19

(RFE/RL) -- After a nearly two-week dry spell, Russian natural gas is once again flowing toward Europe through Ukrainian pipelines.

The cutoff was ended after Russian and Ukrainian energy officials on January 19 signed a 10-year contract on gas supplies and transit.

Officials from Russia's gas monopoly Gazprom said flows were resumed this morning; Ukraine's energy company Naftohaz has confirmed that gas is being received.

Gazprom spokesman Boris Sapozhnikov said EU-led monitors will track the flow of the gas being pumped into Ukraine. The gas is expected to take 36 hours to cross Ukraine and reach European consumers. Slovakia has said it has already started receiving Russian gas.

The restored gas shipments come after a weeks-long dispute between Moscow and Kyiv over the rates paid for Russian gas shipments, transit services, and outstanding debts.

The feud led Russia on January 7 to suspend entirely its supplies of European-bound gas through Ukraine.

Crisis Most Severe

The resulting energy shortage, at a time of unusually frigid winter temperatures, forced emergency measures in Europe and drew sharp condemnation from Brussels.

Wintertime disputes between Moscow and Kyiv over prices have cut off gas to Europe on an almost annual basis, although this year's crisis was by far the most severe.

In forging the new deal, the prime ministers of Russia and Ukraine, Vladimir Putin and Yulia Tymoshenko, appeared eager to assure European clients that gas would flow uninterrupted for the decade to come.

"I think it is really a historic moment today -- 10 years of calm and predictable behavior in gas supplies to Europe and Ukraine," Tymoshenko said.

The deal, which was signed on live television by the heads of Gazprom and Ukraine's Naftohaz as Putin and Tymoshenko looked on, divides the troublesome issues of pricing and transit into two separate agreements.

A statement from Gazprom says that under the terms of the deal, Russia agrees to supply Ukraine with gas at prices that are 20 percent lower than those paid by Europe.

Substantial Increase

This means a substantial rise in Kyiv's payments, which last year were just $179.5 per 1,000 cubic meters.

In a meeting with Russian President Dmitry Medvedev on January 20, Gazprom CEO Aleksei Miller said the new rate would be nearly $200 more.

"The base price [of gas] for the first quarter [of 2009] is $450 for 1,000 cubic meters," Miller said. "Taking into account the 20 percent discount offered [to Ukraine], the price for the first quarter will be $360 for 1,000 cubic meters for Ukraine."

That rate will be recalculated on a quarterly basis, and will be adjusted to match European rates in full as of the start of 2010. With gas rates set to follow oil on a steep price decline, however, Ukrainian officials have projected they may soon be paying $250 or less for their gas.

Ukraine appears to have lost out on its short-term request that Russia pay more for the right to transit its gas across Ukraine. The new deal freezes transit fees at the 2008 level of $1.70 per 1,000 cubic meters per 100 kilometers. Those rates will be raised to European levels in 2010.

In a sign the two countries do not necessarily see eye to eye on all issues, Gazprom says European transit countries currently receive $4 to $5 per unit; Naftohaz says the fee is closer to $8 or $9.

Russia has also sought to remind Ukraine that it has other options. At the January 19 signing, Putin spoke of a clear need to diversify Russia's gas-export routes, mentioning Nord Stream and South Stream, two pipeline projects that circumvent Ukraine.

'Ready To Work'

The Russian prime minister also hinted strongly that Moscow might attempt to assume a more active role in Ukraine's pipeline system.

"From our point of view, it's necessary to greatly diversify the routes for supplying energy resources to Europe, not only using existing transport routes," Putin said. "I already spoke about the fact that we are ready to work with our Ukrainian partners to develop the gas-transportation system in Ukraine."

Ukraine has spent the past decade resisting attempts by Russia to acquire shares or influence in its gas-transit system.

Federico Bordonaro of the Italy-based energy-risk-assessment group said Putin's remarks suggest the latest deal might include other concessions by Kyiv.

"We have to find out if Yulia Tymoshenko has promised something more to the Russians," Bordonaro says. "I suspect that the Russians have linked the deal to something very political, because [the Russians] need to control Ukraine politically to a certain extent if they want to project their power to Eastern Europe and therefore remain a relevant power in Central-Eastern Europe."

Tymoshenko's role as the co-author of the breakthrough deal may prove a significant political boost. Ukraine's ambitious prime minister has made no secret of her aim to run for president in 2010. An alliance with Moscow may strengthen her position vis-a-vis that of her rival and former Orange Revolution ally, President Viktor Yushchenko.
Tangled Web
Many sections of Ukraine's gas-pipeline system date back to the Soviet era and make it difficult to precisely control gas flows.


Pipelines & Projects

A factbox on how gas gets to Europe from Russia and some of the new pipeline projects aimed at bringing more Russian gas to Europe and diversifying supplies. More

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