Russia Warns Of Gas Crisis If Ukraine Misses Payment

KIEV, Ukraine -- Russia warned it may halt gas exports through Ukraine if the bailout-dependent former Soviet state can’t keep up payments in what is becoming an annual dispute between the two countries.

Russian PM Vladimir Putin with Ukrainian PM Yulia Tymoshenko.

“If transit countries fulfill their obligations, there won’t be any problems from our side,” Prime Minister Vladimir Putin told reporters in Moscow today. “As soon as there’s any siphoning, we’ll cut transmission.”

Ukraine, which ships about 80 percent of Russian gas exports to Europe, may have to postpone payments for the fuel if it doesn’t get an International Monetary Fund tranche on time, Deputy Prime Minister Hryhoriy Nemyria said yesterday. The spat between the two countries is less likely to threaten European gas supplies than previous crises after recession-led declines in industrial output left the west with more gas on tap from domestic stockpiles.

The Paris-based International Energy Agency warned yesterday there may be an “acute glut” of natural gas globally in the next few years because of rising production of unconventional fuel in North America.

After a similar dispute over gas supplies in January 2006, European nations diversified their sources of fuel and improved inventories. Russia accused Ukrainian authorities in earlier disputes of redirecting gas intended for Europe to supply the country’s own population.

Austerity Demands

Ukraine, which is relying on international lenders to stay afloat as it prepares for Jan. 17 presidential elections, yesterday failed to reach an agreement with the IMF on how to meet fiscal austerity demands and unlock a $3.4 billion installment of the $16.4 billion bailout, presidential aide Oleksandr Shlapak said. He declined to comment on when an accord might be reached.

Gazprom has repeatedly cut deliveries to Ukraine since 2006 because of disagreements over pricing and payments. Ukrainian Prime Minister Yulia Timoshenko, a presidential candidate, negotiated a new contract with Putin in January after a Gazprom cut that caused disruptions in 20 European countries.

Timoshenko said today her government will challenge a law put forward by opposition parliamentarians and signed by President Viktor Yushchenko that defies IMF austerity guidelines. A Constitutional Court ruling overturning the law, which raises welfare spending, would revive bailout flows and provide Ukraine with the funds it needs to pay for the gas.

Gazprom shares fell 1 percent to 181.74 rubles today in Moscow, heading for their first drop this week. The yield on the Ukraine government 6.75 percent note due in 2017 rose 20 basis points to 12 percent, Bloomberg prices show. Yields move inversely to prices.

Under Pressure

“The rhetoric on the Russian side is not very relaxing,” said Steven Dashevsky, an independent investor in Moscow and former head of equities at UniCredit SpA. “They want to keep the Ukrainians under pressure until they get their desired result: Timoshenko in the presidency.”

Russia halted natural-gas exports through Ukraine to Europe on Jan. 7 for the first time in three years, creating shortages in at least a dozen countries across Europe at the coldest time of year.

“There will be a great danger of another crisis” should Ukraine miss a single monthly payment to energy producer OAO Gazprom, Dmitry Peskov, the spokesman for Putin, told reporters late yesterday.

Putin has questioned Ukraine’s ability to pay for gas, calling on the European Union to lend the country at least $1 billion to ensure secure fuel transit. Under the contract signed in January, Ukraine agreed to make monthly payments by the seventh day of each month.

Paying on Time

“Ukraine is paying in due time all the outstanding amounts and what we are looking for is that they will continue to do so,” Gazprom Deputy Chief Executive Alexander Medvedev said in an interview with Bloomberg Television yesterday. “We would hope that political ambitions will not allow such things to repeat.”

Gazprom said on Nov. 9 it received full payment from NAK Naftogaz Ukrainy for October gas supplies to Ukraine.

Natural gas storage facilities in Germany were 98 percent full as on Nov. 3, compared with 92 percent a year earlier, according to data from Brussels-based Gas Infrastructure Europe.

Norway, Europe’s second-largest gas supplier after Russia, is on pace to exceed last year’s record output of the fuel, compensating for the country’s falling oil production. Norwegian gas output, led by Statoil ASA, was 69 billion cubic meters through August this year, up from 65 billion cubic meters during the same months of 2008.

Ukraine’s Decline

While much of Europe’s supply is locked up in long term contracts, spot gas prices in the U.K. are 31 percent lower than the same time a year ago.

Ukraine, which suffered a 17.8 percent economic contraction in the second quarter, is due to hold further talks with the IMF at the beginning of next week, Nemyria said.

Yushchenko last month signed an opposition bill approving higher social spending and ignoring IMF calls for budget cuts. The IMF had urged Yushchenko to veto the bill, warning it undermines the country’s efforts to comply with budget goals.

Source: Bloomberg

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