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21 Dec, 2011 12:09

Russia and Ukraine still gassing over gas

Russia and Ukraine are locked in talks over gas prices with Kiev claiming it can’t afford the current rate due to its troubled economy.

The country's can't see eye to eye over Russia's suggestion it gets a share of Ukraine's gas pipeline system in return for a price cut. But the negotiations at Prime Ministerial level have agreed the situation won’t impact supplies to Europe. Ukraine is in favor of creating a gas consortium to control its transportation system as the country can’t afford the $5-7 bln it would cost to modernize it.Moscow insists the consortium controlling gas flows through Ukraine should involve just two parties, while Ukraine says a European partner should be involved. Currently "we have the contract that is extremely disadvantageous for us and extremely advantageous for Russia," says Nikolai Azarov the Ukrainian Prime Minister.According to the existing contract Ukraine needs to pay about $400 per a thousand cubic metres until the agreement expires in 2019. However according to Ukrainian President Viktor Yanukovich a fair price wouldn't be more than $250 per thousand cubic meters. Consumers in Ukraine could find themselves unable to pay the higher price, warns Konstantin Simonov, Head of Russia’s National Energy Security Fund. However, the chances of another gas war in the near future are minor, as there is a contract in place which has seven years to run, Simonov adds.“If you want to get cheaper gas, then you should give us a 10% to 15% discount in the pipeline costs from Russia to Europe through Ukraine,” says Simonov.Development of alternative transit routes including Nord Stream and South Stream will certainly damage Ukraine, adds Simonov. But so far the launch of the first part of Nord Stream alone isn’t that dangerous for Ukraine, as Russia won’t be able to transport all of its export gas through the existing capacity. However, once both Nord and South Stream are operating at full capacity, Russia could easily do without Ukraine, concluded Simonov.