Russia’s Gazprom Increases Economic Pressure On Ukraine

A senior Russian energy official said May 12 that Moscow would cease negotiations with Ukraine on natural gas deliveries until Kiev pays the Russian gas monopoly Gazprom what it already owes on last month’s deliveries.

Russia also said Ukraine must pay in advance for future gas deliveries by June 1.

“To continue talks, the debt should be paid," Deputy Russian Energy Minister Anatoly Yanovsky told reporters in Moscow.

The Russian government, which owns a slight majority of Gazprom, says Ukraine has not paid the $3.51 billion it owes for gas received in April. Russian Energy Minister Alexander Novak issued a statement on May 8 saying that under Gazprom’s contract with Ukraine’s gas company, Naftogaz, “failure of obligations automatically leads to a switch to prepayment for gas deliveries.”

European nations rely on Gazprom for about 30 percent of their gas, and about half of that amount is shipped through Ukraine.

The negotiations between Kiev and Moscow involve Ukraine’s effort to amend a contract, signed in 2009, that required Kiev to buy a specific volume of gas at a cost of $485 per 1,000 cubic meters, the highest rate paid by any European client of Gazprom.

Last year, Viktor Yanukovich, then Ukraine’s president, decided to abandon a trade treaty with the European Union that was opposed by Moscow. The Kremlin then dropped Ukraine’s cost to $286.50 for the same volume of gas.

Despite the dispute, Gazprom said there has been no interruption in the gas supply to Europe.

Yanovsky also said Monday that Gazprom is close to agreement to supply gas to China.

“We hope that the negotiations will be completed as scheduled,” Yanovsky said. Gazprom and China have been negotiating a contract for more than a decade. “The contract is, I would say, 98 percent ready,” he said.

Yanovsky’s announcement comes about a week before Russian President Vladimir Putin is to visit China.

By Andy Tully of Oilprice.com