Updated: Gazprom halts natural gas supply to Ukraine; transit flow continues

16 June 2014 12:07 Source:ICIS

Natural gas transit volume to Europe via Ukraine was flowing normally on Monday, after Russian producer Gazprom halted supplies to Ukraine from 10:00 Moscow time, a spokeswoman for the European Commission said.

Slovakian grid operator Eustream also confirmed that flow and pressure from Ukraine towards Europe via Slovakia remained stable.

The supply halt comes after weeks of negotiations between the EU, Ukraine and Russia failed to result in an agreed price that Ukraine would pay for Russian gas. The embattled country owes a debt of around $4.5bn (€3.3bn) to Gazprom but refuses to pay, saying that Russia is over-charging Ukrainian incumbent Naftogaz.

Gazprom has now switched Naftogaz to a pre-payment system for gas, meaning Ukraine will not receive supplies for June, as they have not been paid for in advance.

“The decision was made because of chronic non-payments by Naftogaz Ukraine [...] As of today, the Ukrainian company will receive the amount of Russian gas it will have paid for,” Gazprom said on Monday.

According to the Russian producer, Naftogaz’s outstanding debt for Russian gas deliveries is $4.458bn, out of which $1.451bn is owed for November-December 2013, and $3.007bn for April-May 2014.

A spokeswoman for Gazprom confirmed that the supplier had stopped providing any gas which would be intended for Ukrainian supply this morning, but added that European transit gas was continuing to be pushed through the pipes.

ICIS understands that gas flows into Turkey via Romania and Bulgaria were also unaffected.

Gazprom has called on Naftogaz to ensure the transit of gas to Europe, but has also notified the European Commission of a possible shortfall in transit in case the Ukrainian company were to start illegally collecting gas from transit flows.

Gazprom’s CEO Alexey Miller said his company will analyse gas transit to European consumers on a daily basis and, should there be any evidence that Ukraine takes any volume, Gazprom would increase supply through the Nord Stream and Yamal pipelines, avoiding Ukraine as a transit country. Miller was quoted in local press saying Monday’s nominations for gas to flow to Europe through Ukraine were slightly more than 185 million cubic metres (mcm).

Gazprom also filed a lawsuit against Naftogaz with the Stockholm International Arbitration Court to recover the $4.5bn in gas debt, the Russian company said. Gazprom added that the legal action follows Naftogaz’s violation of contractual obligations concerning purchase and sale of gas enshrined in the bilateral supply agreement signed at the beginning of 2009.

Naftogaz, in turn, is also suing Gazprom in the Stockholm court, demanding revision of the price it is expected to pay under the current supply contract.

Naftogaz is also seeking to retrieve $6bn in what it claims to have overpaid Gazprom since 2010, the company said on Monday.

In 2013, Ukraine flowed 85 billion cubic metres (bcm) of Russian gas to Europe, which came to 52% of total Russian exports. This was down from 93bcm in 2009. Miriam Siers and Lucie Roux

By Miriam Siers