PM Vows To Continue To Cut Natgas Imports

KIEV, Ukraine -- Ukraine will continue to work hard to secure greater energy independence following a $7 billion bill recently slapped by Russian gas giant Gazprom, Prime Minister Mykola Azarov said Friday.

Ukraine last month signed a 50-year deal with Royal Dutch Shell allowing Europe’s biggest oil company to explore and develop shale gas fields in the country.

Ukraine is also planning to increase imports of natural gas from Europe as part of its energy diversification strategy.

“The country has made tremendous efforts to ensure energy independence. We take money from everything else and send it for these purposes,” Azarov told a group of reporters.

“And you know why we’re doing this.”

Gazprom slapped Ukraine with the $7 billion penalty enforcing the ‘take-or-pay’ clause in the gas supply contract signed in January 2009.

The deal, negotiated by then-Prime Minister Yulia Tymoshenko, called for Ukraine importing 52 billion cubic meters of gas annually through 2019.

The deal allows Ukraine to reduce imports by 20% to 42 Bcm/year without any penalty.

Ukraine can also ask for permission from Gazprom to lower imports to 33 Bcm/year.

But any lower imports than that would automatically trigger the ‘take-or-pay’ clause that punishes Ukraine with a steep penalty.

The state energy company Naftogaz Ukrayiny, which asked for lower gas imports but never received the permission, reduced imports to 24.4 billion cu m in 2012, down from 40 billion cu m in 2011.

This apparently triggered an angry reaction from Gazprom.

“The last bill, which was submitted by Gazprom, is a gigantic sum,” Azarov said.

“That's worth about 3 months of all our social security payments to retirees.”

Azarov said last week Ukraine planned to increase imports of gas from Europe in reaction to the Gazprom penalty, indicating that the country planned to further reduce gas imports from Russia.

Ukraine began importing about 1 million cubic meters/day of natural gas from Germany in early November 2012 and planned to boost the imports in 2013. 

Ukraine planned to increase imports of gas from Germany to between 5 and 7 billion cubic meters/year within the next three years, according to Ukrainian officials. 

Gazprom declined to comment on the penalty, which some analysts said may trigger gas supply disruptions potentially affecting the European Union.

Source: Ukrainian Journal