A complex five-year deal was announced today after talks in Moscow between the heads of Russia's state-controlled natural gas monopoly Gazprom and Ukraine's state energy company Naftohaz.
Ukraine will buy a mix of Russian and Central Asian gas from a Russian-Ukrainian joint venture for $95 per 1,000 cubic meters.
Ukrainian President Viktor Yushchenko said his country's economy would cope with the new prices, which are nearly double what Kyiv had previously paid.
Russian President Vladimir Putin welcomed the agreement, which takes effect immediately.
Speaking on behalf of the EU, Energy Commissioner Andris Piebalgs called the agreement vital if Russia and Ukraine are to remain "reliable and secure gas suppliers of Europe." He also said the dispute has had some lessons for Europe.
"Europe needs a clear and more collective and cohesive policy of security of energy supply. Today the issue of security of energy supply is only really considered at the national member state level, but in reality we need a much greater, European-wide approach to this issue."
On 1 January, Gazprom cut off supplies to Ukraine after Kyiv refused to agree to a more than quadrupling in gas prices. Gazprom had originally demanded that Kyiv pay $230 per 1,000 cubic meters of gas. Ukraine previously paid just $50 for the same amount.
Ukraine is the main transit route for Russian gas to the Europe Union, and supplies were temporarily disrupted by the cutoff.
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- Ukraine consumes 70 billion cubic meters (bcm) of gas per year. It produces 20 bcm of its own gas, has a signed contract to import 40 bcm from Turkmenistan, and in 2005 was getting 29 bcm from Russia as payment for transit of Russian gas.
- Ukraine sells some 7 bcm of gas a year to the West and places some in underground storage facilities. These facilities can hold 34.5 bcm.
Ukraine is the sixth-largest consumer of gas
in the world and uses more gas than Poland, the Czech Republic, Hungary, and Slovakia combined.
- Russia has proven gas reserves of 47 trillion cubic meters (tcm) -- the largest in the world ahead of Iran and Qatar.
Russia sells approximately 160 bcm to Europe each year.
By 2015, Europe is expected to import 300 bcm, or 40 percent of its projected needs from Russia.
Russia's Gazprom is the world's largest gas company.
It is the only company allowed by Russian law to export gas outside the borders of the CIS. It also owns the gas-transportation system and most of the gas fields in Russia.
The Russian state is Gazprom's majority shareholder
, with a 51 percent share. The company's ownership rights changed as of the beginning of 2006, with Gazprom stock being sold on the open market. The Russian state, however, will continue to hold the majority stake.