Gazprom could switch Ukraine to advance payment for natural gas from June

25 April 2014 17:01 Source:ICIS

Russian producer Gazprom has given Ukraine’s state-owned oil and gas incumbent Naftogaz until 16 May to pay its outstanding debt for natural gas supplied at the end of 2013 and the beginning of 2014, the CEO of Gazprom Export Alexander Medvedev said on Friday.

If that deadline is not met Gazprom will demand advance payment and will only supply gas to Ukraine in pre-paid volumes. Ukraine will then have until 31 May to pre-pay the volumes it wants to receive in June. Until 31 May Ukraine will continue to receive gas in line with the current contractual conditions, Medvedev told journalists in London.

Payment for gas supplied to Naftogaz in April is due on 7 May. If that payment is not made Naftogaz’s debt for supplied gas will reach $3.5bn. Naftogaz’s monthly payments have become more sporadic and increasingly absent in recent months.

Under the two companies’ contractual obligations, Naftogaz must clear the entire balance on 7 May. However, ICIS understands that if Ukraine paid a “considerable amount” of the debt it could buy itself some leeway and Gazprom would not impose the advance payment mechanism.

Current deliveries of Russian gas to Ukraine stand at about 100 million cubic metres/day.

In the worst case scenario, if no payment is made, gas deliveries to Ukraine would stop but Gazprom will continue to supply to the Ukrainian border all volumes nominated by its European customers and use an early warning mechanism. Gazprom and EU representatives would also establish joint groups to monitor transit of this gas via the Ukrainian system on to Europe.

Medvedev also said that Ukraine needs about $4bn-5bn to insure enough gas is injected into Ukrainian storage during the summer in order to ensure secure supplies to Europe next winter. Ukrainian storage is located on the country’s western border so gas flowing from Russia in the winter stays for Ukraine’s own consumption while withdrawals from storage are used to send gas to Europe.

Medvedev also confirmed that Naftogaz owes Gazprom $18.5bn for gas that it was contracted to buy but did not take delivery of over the last two years ( see ESGM 24 April 2014 ), Medvedev said that Gazprom is planning to use all contractual tools to obtain that money but would “prefer an out-of-court settlement”.

Medvedev said that, unlike in 2009, when tensions between the two countries led to a temporary halt in Russian gas supplies, the current situation is radically different because Gazprom and Naftogaz have supply and transit agreements in place. He added that supply risks are also mitigated by the current low demand and greater availability of storage gas in Europe.

Ukraine receive 25.84 billion cubic metres (bcm) of Russian gas in 2013 and 32.9bcm the year before.

Ukraine’s supply contract with Gazprom from 2009 stipulated a 52bcm/year supply volume to Ukraine on a 80% take-or-pay basis. Gazprom transited 85bcm of gas via Ukraine to Europe in 2013 and 82bcm in 2012. Katya Zapletnyuk

By Katya Zapletnyuk