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Ukraine: New Gas Crisis For Kyiv, Europe

(ITAR-TASS) On 1 January, Russia's Gazprom gas monopoly stopped gas deliveries to Ukraine by lowering pressure in the main pipeline to Europe. The same day, Gazprom spokesman Sergei Kupriyanov told ITAR-TASS that all 15 billion cubic meters (bcm) of gas to be exported from Turkmenistan in the first quarter of 2006 belongs to Gazprom.

This could mean that Turkmen gas under contract for delivery to Ukraine in this period, approximately 11.35 bcm, will not be delivered to Ukraine and, according to existing contracts, less gas will be available for European customers.

Turkmen gas deliveries to Ukraine are handled by a company created by Gazprom and a group of unnamed Ukrainian investors, RosUkrEnergo, which is paid by Ukraine for its services with 13 bcm of gas per year. RosUkrEnergo in turn sells this gas to Gazprom's European customers. If deliveries of Turkmen gas to Ukraine are now suspended, RosUkrEnergo will not have any gas to sell on European markets -- further exacerbating an already tense situation.

Gazprom Tightens The Screws

On 29 December, following a meeting with Turkmen President Saparmurat Niyazov in Ashgabat, Gazprom Chairman Aleksei Miller announced that Gazprom will purchase 30 bcm of Turkmen natural gas at $65 per 1,000 cubic meters in 2006, RIA-Novosti reported. Interfax quoted Niyazov as saying that Ukraine had agreed to buy 40 bcm of gas in 2006 for "slightly less" than $65 per 1,000 cubic meters.

The only pipeline that can transport these 70 bcm of gas to Russia and Ukraine is the Central Asian "Center" pipeline, which on Russian territory belongs to Gazprom. Its through-put capacity is 45 bcm per year; however, due to technical problems in the Uzbek and Kazakh sections of the pipeline, the actual capacity is closer to 36 bcm. In all likelihood, Russia will get its 30 bcm and Ukraine might end up getting only six of the 40 bcm it contracted for, leaving 34 bcm of purchased gas with no means of leaving Turkmenistan.

In 2005, Russia purchased approximately 7 bcm of gas from Turkmenistan. The decision to increase this amount by 23 bcm for 2006 came as a surprise, considering that in the 25-year gas-purchase contract signed in 2003 between Russia and Turkmenistan it was projected that Russia would only buy 7-10 bcm in 2006, according to Gazprom's website. For some reason, Gazprom suddenly decided in December that it needed to quadruple imports of Turkmen gas. It is possible that the decision was reached either to prevent gas from reaching Ukraine or else Gazprom is facing a shortfall in its own production -- something it vehemently denies.

If Ukraine were to lose a substantial part of its supply of Turkmen gas, it would be forced to rely largely on its own annual production of 20 bcm of natural gas to meet its needs of over 70 bcm of gas. Ukraine could then be forced to buy the balance from Russia or Norway, which it cannot afford to do at current prices. The result is sure to worsen the energy crisis in Ukraine.

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