Bloomberg News

Gazprom Snubs Ukraine Plan to Cut Gas Sales, Fueling Discord

January 12, 2012

(Updates with analyst comment starting in third paragraph.)

Jan. 12 (Bloomberg) -- OAO Gazprom, Russia’s gas-export monopoly, rejected a plan by Ukraine to reduce deliveries of the fuel by almost half as the two sides dispute the terms of a supply accord.

Ukraine, which depends on its larger neighbor for more than 70 percent of its gas needs, has no right to cut its imports this year to 27 billion cubic meters from a contracted 52 billion cubic meters, Gazprom said today in a statement. Ukraine’s state-run energy company NAK Naftogaz Ukrainy said yesterday that the current agreement allows it to curb imports.

“The tension will remain as the parties negotiate a new deal,” Igor Kurinnyy, a London-based oil and gas analyst at ING Groep NV, said today by telephone. “There is rhetoric from both sides and an attempt to put pressure on Gazprom, but Ukraine is unlikely to unilaterally breach the contract.”

Ukraine is seeking cheaper gas from Russia after Gazprom’s oil-linked prices rose, hurting the former Soviet Republic’s economy. Ukraine’s bargaining chip is its pipeline network, which Russia needs to ship most of its European Union-bound gas. Disputes between the two countries over gas prices and transport costs have disrupted winter supplies to Europe twice since 2006.

Gazprom Chief Executive Officer Alexei Miller and Ukraine’s Coal and Energy Minister Yuriy Boyko plan to meet in Moscow on Jan. 17, the gas producer’s press office said today. Russian President Dmitry Medvedev, meeting with Miller yesterday, called for a “civilized way” of resolving differences.

Contract Terms

In 2009, the Moscow-based gas company agreed on a 10-year supply contract to end the interruptions in deliveries. The deal obliged Ukraine and Russia to agree in writing on revisions at least six months before the start of the year, Gazprom said in today’s statement. The terms compel Ukraine to take at least 80 percent of the contracted supply or pay for the unused volumes.

Naftogaz has sent about 10 letters to Gazprom asking to cut its imports to 27 billion cubic meters this year, the Kiev-based company said yesterday. It also sent a request as far back as May informing Gazprom of its plans to scale back imports to that level in 2012, it said today in a statement. Ukraine’s gas use dropped after the price jumped to $400 per 1,000 cubic meters in the fourth quarter, Naftogaz said.

“The contract is burdensome for Ukraine,” Kurinnyy said. “The negotiations may drag.”

--Editors: Amanda Jordan, Torrey Clark

To contact the reporters on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.


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