By Stephen Bierman and Daryna Krasnolutska
Jan. 13 (Bloomberg) -- OAO Gazprom, the Russian supplier of a quarter of Europe’s natural gas, began pumping fuel into pipes through Ukraine, the first step toward ending a six-day supply halt that disrupted shipments to at least 20 European nations.
Gazprom resumed deliveries after observers from the European Union began monitoring transit at metering stations in Russia and Ukraine under an accord signed yesterday. The order to pump about 76 million cubic meters of fuel today toward the Balkans, Turkey and Moldova was broadcast on state television.
The Russian company suspended flows via Ukraine on Jan. 7 after talks on a supply contract with that country collapsed. Ukraine rejects Russian accusations that the former Soviet republic siphoned off gas, and talks on shipments and transit fees are stalled. Gas may reach Europe in about 36 hours, according to Czech Prime Minister Mirek Topolanek.
“The EU monitors are in place but Russia and Ukraine have yet to agree on how compressor stations powering the Ukrainian pipeline network will be fueled,” Maria Radina, an oil and gas analyst with UBS AG, said by telephone from Moscow today. “This will likely be the next issue in Russia and Ukraine negotiations.”
No confirmation
The EU is yet to receive confirmation from its experts that supplies have resumed via Ukraine, said Ferran Tarradellas Espuny, a spokesman for the European Commission. The cutoff disrupted supplies to at least 20 nations, with the Balkans the hardest hit. It also renewed calls for the 27-region bloc to diversify its sources of energy away from Russia.
Ukraine said the gas it took was so-called technical gas, used to power compressor stations to operate pipelines. Russia said Ukraine should provide that gas because it pays for transit. Ukrainian President Viktor Yushchenko ordered the government to ensure transit yesterday, while his prime minister said the nation will pay for technical gas once a 2009 supply contract is signed.
Ukraine’s pipeline network requires around 6.5 billion cubic meters of gas a year, Prime Minister Yulia Timoshenko said Jan. 12. In 2007, Denmark consumed 4.6 billion cubic meters of gas, Slovakia 5.9 billion cubic meters, and Austria 8.9 billion cubic meters, according to BP Plc’s Statistical Review of World Energy.
U.K. gas for delivery next month declined 0.5 percent to 54.7 pence a therm at 9:05 a.m. local time, according to broker Spectron Group Ltd. That’s equal to $8.03 a million British thermal units. A therm is 100,000 Btus. Prices surged 24 percent last week after Gazprom turned off the taps.
European Mediation
The resumption came after European Commission President Jose Barroso said yesterday an agreement allowing shipments to be measured was approved by all sides. Gazprom’s European customers receive 80 percent of their supplies via Ukraine’s pipelines. Observers from Austria, Hungary, Italy, France and the Czech Republic started work at metering stations in western and southern Ukraine, Ukrainian energy company NAK Naftogaz Ukrainy said.
“EU monitors are useful window dressing for both sides to climb down from the dead-end positions that they had worked themselves into,” Ed Chow, an analyst at the Center for Strategic & International Studies, said from Washington late yesterday. “Monitors by themselves do not solve any of the fundamental issues in the dispute.”
Gas may reach Europe in 14 to 16 hours after resumption, Ukrainian Deputy Prime Minister Hryhoriy Nemyria said yesterday. Gazprom asked Ukraine to send gas to Europe today using fuel in the pipeline, the Interfax news service reported, citing spokesman Sergei Kupriyanov.
Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows via Ukraine and supplies to Ukraine’s domestic market were suspended Jan. 1. Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s largest natural-gas company, expects gas from Russia via Ukraine to arrive tomorrow, spokeswoman Joanna Zakrzewska said by phone from Warsaw.
Brink of Blackout
Slovakia warned yesterday it was “on the brink of blackout,” prompting the government to consider restarting a nuclear power plant in violation of EU rules. Hungary halted deliveries to Serbia and Bulgarian gas imports were halted because of “technical reasons.”
Gazprom Deputy Executive Officer Alexander Medvedev, who attended a meeting of EU energy ministers in Brussels yesterday, said the company plans to expand underground storage capacity in Europe to secure future supplies. The state-run exporter has lost $800 million in the dispute, Russian Prime Minister Vladimir Putin said Jan. 11.
Medvedev said Gazprom is “open to discussions” to find a solution to the pricing issue for Ukraine this year. Oleh Dubina, the Naftogaz head, said on the weekend talks had failed to produce a result. Gazprom offered a price of $450 per 1,000 cubic meters after it said Ukraine rejected an offer, subsequently withdrawn, of $250. Medvedev said $450 was for the first quarter.
Saga Continues
It’s “not the end of the saga,” Ronald Smith, chief strategist at Moscow-based Alfa Bank, said by telephone from yesterday. “What you’re going to see now is Russia and Ukraine talking again about gas prices, with Ukraine in a materially weaker bargaining position.”
Gazprom’s prices to European customers under long-term contracts typically lag behind prices for crude and oil products by about six to nine months. Crude has fallen by more than 70 percent since reaching a record in July. Ukraine paid Russia $179.50 per 1,000 cubic meters for gas last year under a separate arrangement.
Transit Fees
The Russian company maintains it has a transit contract with Ukraine through the end of 2010 at $1.70 per 1,000 cubic meters per 100 kilometers (62 miles). Putin has said Russia would consider an increase in the price to European market levels of $3.40 should Ukraine accept European prices for gas supply. Russia isn’t paying for transit now, Ukrainian Energy Minister Yuriy Prodan said.
Relations between Ukraine and Russia have become strained over efforts by the former Soviet republic to join the EU and the North Atlantic Treaty Organization. The gas dispute has come as Timoshenko and Yushchenko, who have clashed over economic policy, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.
In 2006, Russia turned off all gas exports to Ukraine for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.
To contact the reporters on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net; Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net
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