Russia Threatens To Cut Natgas Shipments

MOSCOW, Russia -- Days after resuming natural gas price talks, Russia on Wednesday suddenly accelerated pressure on Ukraine, threatening to reduce to ‘zero’ shipments of its gas via Ukrainian pipelines within years.

Russian President Dmitry Medvedev.

The warning, issued by a Gazprom official, came hours after Russian President Dmitry Medvedev - in televised remarks – had ordered the punishment of Ukraine for alleged gas siphoning.

This comes days after Russia has suggested resuming gas talks with Ukraine and has reportedly proposed cutting gas prices 10% if Ukraine agrees to import at least 33 billion cubic meters of gas in 2012.

The proposals, delivered Monday by Sergei Naryshkin, the head of the State Duma, the lower house of Russian Parliament, stipulated further price cuts would come only if Gazprom acquires 50% of Ukraine’s gas transportation system.

Russia’s tough response on Wednesday may be a sign that Ukraine has rejected the proposals, signaling that further escalation of the dispute is possible.

“Settle accounts with your [Ukrainian] colleagues via corporate tools and through commercial and legal ways,” Medvedev told Alexei Miller, the CEO of Gazprom, at a meeting in Moscow.

“Explain to the Ukrainian friends why we increase capacity of the Nord Stream, and continue the talks on gas issues.”

Nord Stream, a gas pipeline linking Russia and Germany across the Baltic Sea, was completed in November 2011.

Russia used the pipeline to reduce gas shipments via Ukraine by 17% on the month in February.

Russia also planned to build another route, South Stream, a $20 billion pipeline linking Russia and Bulgaria across the Black Sea.

This project would take years to build.

“After all projects that are planned by Gazprom are completed… Ukraine’s transit status for exports of Russian gas will equal zero,” Sergei Kupriyanov, Gazprom’s spokesman, said shortly after the meeting between Medvedev and Miller.

Ukraine has been unsuccessfully seeking for the past two years to win a reduction of Russian gas price to $230-250 per 1,000 cubic meters from $416/1,000 cu m currently.

In return, Ukraine has suggested setting up a trilateral gas transportation joint venture that would operate its gas pipeline transportation system.

Ukraine would own 34% in the joint venture, while Gazprom and an unidentified European company would own 33% each, according to a source in the Ukrainian government.

Medvedev resorted to tough rhetoric after Miller had complained that Ukraine had siphoned 438.3 million cubic meters of gas during the first two weeks of February, when extremely cold weather had persisted.

“Are we talking about a traditional business of illegal gas siphoning by our Ukrainian friends?” Medvedev asked Miller.

“They used as much as gas from the export pipeline as they wanted,” Miller responded, adding that Gazprom’s reputation and profits had suffered.

Ukraine’s national energy company, Naftogaz Ukrayiny, quickly responded by denying the siphoning had ever taken place.

“Naftogaz has never illegally siphoned even one cubic meter of Russian gas since the beginning of 2012 that had been exported to Europe,” the company said in a statement.

Instead, Naftogaz said it had provided at least 40 million cubic meters of its own gas to Turkey when the cold weather persisted and Gazprom was unable to meet the growing demand, the company said.

“If the Russian party asked us, we could have helped European consumers in a situation when gas supply levels were critical,” Naftogaz said.

Ukraine owns massive underground gas storage facilities on the border with the European Union that can hold up to 30 billion cubic meters of gas that can be used in the winter when gas consumption increases sharply.

Ukraine had 20.4 billion cubic meters of gas stored in its underground facilities at the end of October 2011, when high demand season began, and that level was reduced to 15 billion cu m at the end of January, according to Naftogaz.

“This has confirmed the importance of underground gas storage facilities as an indispensible part of Ukraine’s gas transportation system for providing reliable and uninterrupted transit of natural gas via the territory of our state,” Naftogaz said.

Source: Ukrainian Journal