Gazprom turns Ukraine's gas back on

Russia's Gazprom has reached an agreement with Ukraine’s Naftogas over unpaid debts and has resumed full gas supplies to the country. Deliveries were cut to about 50 per cent of normal on Tuesday. Ukraine had threatened to curb gas shipments to Europe if

The heads of the two gas companies, Gazprom and Naftogaz, managed to reach a compromise and resolve the gas crisis after a two-day stand-off.  As a result, Naftogaz promised to pay for the gas it has received from the start of the year while Gazprom resumed full gas deliveries.

Gazprom spokesman Sergey Kupriyanov told the media about what had been agreed by the sides.

“Gas delivered from January 1 to March 1, 2008, will be fully documented and paid for by Ukraine after a scheme effective as of the beginning of this year. Transit of Russian gas to Europe through Ukraine is unaffected. Restrictions on gas deliveries to Ukrainian consumers have been lifted,” Kupriyanov said.

The resolution came just hours after Naftogaz threatened to take 60 million cubic meters of Russian gas from a transit pipeline to Europe to compensate for lower supplies for its domestic needs.

But not all issues have been settled. 

Ukraine’s Prime Minister Yulia Timoshenko said Naftogaz will continue negotiations and insist on buying gas directly from Gazprom.

“To deliver gas to Ukraine, there are companies such as Gazprom and Gazpromexport that already supply central-Asian gas to Ukraine and Naftogaz. There’s no need to create additional joint ventures,” Timoshenko said. 

Some experts say the latest compromise will lead to a review of the terms of the contract and point out that the dispute was well-timed.

Chris Weafer, chief strategist of Uralsib company, noted that there have been two very mild winters across Europe, so European customers – including Ukraine – have a lot of gas in storage.

“So they’re in a good position to wage a protracted dispute with Russia, and, of course, their ace is that the clock is now ticking down towards Dmitry Medvedev’s appointment as Russia’s president and this is undoubtedly something that the Kremlin will not want to see this as a background issue to distract from the change of the president,” Weafer said.

This new gas crisis was a fresh reminder to the European community of previous restrictions to supply. But it may yet play into Gazprom’s hands – it’s building two new gas routes: Nord and South Streams.

Chris Weafer pointed out that it could certainly help focus attention on that dispute and get a quicker resolution to start that project.

“And on the other hand the South Stream pipeline which is now being signed off with all the key countries – Hungary, Serbia, Austria etc – that pipeline is likely now to be prioritised and its construction to start very quickly,” Weafer added.

And there may yet be another twist to the story: while Gazprom has insisted the dispute was just about unpaid bills, analysts say it may offer Ukraine a more favourable deal in return for access to the Ukrainian end consumer.