Ukraine Delays Prepaid Gas Flow Due to Russia’s Cutoff Threat

Ukraine’s state energy company will cut natural gas imports from Russia to keep the fuel flowing for the next six days as the former Soviet allies prepare for European Union-brokered talks in Brussels on Monday.

NAK Naftogaz Ukrainy will reduce its daily gas requests by 83 percent to 10 million cubic meters on Sunday and keep them at that level through March 5, it said in an e-mailed statement. Russia estimated it may have to halt prepaid supplies on Tuesday at the current level of delivery.

Gas shipments have been a flash-point in the troubled relations between the countries for years. The dispute reignited last week over supplies to rebel-held areas in eastern Ukraine. Russia demanded Ukraine pay extra to meet the cost of supplies to the region, while state-run Naftogaz refused and accused Gazprom of failing to meet its fuel requests.

“Naftogaz expects the requested volume of prepaid gas — no more, no less — via the agreed entry points,” Aliona Osmolovska, the company’s spokeswoman, said in the statement.

On Friday, Naftogaz sent $15 million to Gazprom to keep the gas flowing. While Russia had estimated the money would be enough only until Tuesday, it said deliveries to the conflict areas would be charged separately.

Rebel Gas

Gazprom isn’t taking money for gas supplies to the rebel regions from Naftogaz’s advance payments, Russia’s RIA Novosti newswire reported, citing Energy Minister Alexander Novak.

The easing of the dispute came after Ukrainian government troops and pro-Russian separatists announced they had started to pullback heavy weapons under a peace accord signed earlier this month.

“This gas dispute is clearly tied to the dynamics of military operations in the east of Ukraine,” said Vasily Kashin, an expert at the Center for Analysis of Strategies and Technologies in Moscow.

There’s still no certainty the truce will hold as the arms removal is proceeding slowly, according to Dennis Sakva, an energy analyst at Dragon Capital in Kiev. Ukraine may last without Russian gas, using its own fuel and reverse flows from the EU if warmer weather lasts through March, he said.

Gazprom, which sends about 40 percent of its gas to the Europe via Ukrainian pipelines, has said the transit is at risk if fuel deliveries to Naftogaz are halted over payment issues.

Russia stopped deliveries to its neighbor in 2006 and 2009 during cold winter months because of payment disputes, leading to supply disruptions in Europe.

EU transit doesn’t depend on deliveries of Russian gas to Ukraine, Naftogaz’s Osmolovska said.

The 28-nation block would avoid disruption this time round, Emily Stromquist, an analyst at Eurasia Group in London, said in an e-mailed report on Thursday. “Ukraine probably can get through the winter without siphoning” EU-bound gas from transit pipelines, she said.

Source: Bloomberg



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