By Lucian Kim and Daryna Krasnolutska
Jan. 20 (Bloomberg) -- OAO Gazprom, Russia’s natural-gas exporter, resumed supplies to the European Union via Ukraine, almost two weeks after a price dispute halted deliveries.
“Gas is not only flowing in the direction of Europe but is flowing to Europe,” Deputy Chief Executive Officer Alexander Medvedev said today after the taps were switched on at 10.05 a.m. Moscow time. Slovakia and Hungary have already started receiving Russian gas.
“This finally puts the bulk of the issues to bed,” said Ronald Smith, chief strategist at Alfa Bank in Moscow. Gazprom may face EU lawsuits because of the disruption, he said.
Russia, which supplies a quarter of Europe’s gas, cut off shipments to Ukraine on Jan. 7 after accusing it of siphoning off EU-bound gas, a charge the country denies. More than 20 European countries were affected, as 80 percent of Russian gas exports pass through Ukraine’s pipeline network.
Gazprom and Naftogaz signed a 10-year contract yesterday in a ceremony overseen by Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Timoshenko. The agreement sent gas prices lower in the U.K., Europe’s biggest market for the fuel, and pushed up the hryvnia and ruble.
European Commission President Jose Barroso said the cut-off should never have happened and that both countries -- Ukraine and Russia -- had damaged their credibility.
RWE AG, Germany’s second-largest utility, estimates Russian gas will arrive in western Europe one to three days after the resumption of supplies.
The new contracts stipulate the transit of as much as 120 billion cubic meters of Russian gas to Europe this year through Ukraine, which will buy 40 billion cubic meters for its own market, Gazprom said in a statement.
Gas Prices
The price of gas for Ukraine will be $360 per 1,000 cubic meters in the first quarter and adjusted quarterly until next year, when the country moves to a “European market price,” the Moscow-based company said.
European consumers can expect an average price of $280 per 1,000 cubic meters of gas this year, while Ukraine will pay an average of $250, Medvedev told reporters on a conference call.
Ukraine plans to “minimize” the use of Russian gas and will use fuel in storage while the price remains high, Timoshenko told reporters in Kiev. Experts are expected to confirm that Ukraine didn’t steal gas from Gazprom during the dispute, she said during a meeting with the EU’s energy commissioner, Andris Piebalgs.
EU Taskforce
The supply cutoff has already prompted renewed calls for the region to consider developing alternative sources of energy and nuclear power.
The EU needs to set up a taskforce to deal with future energy crises, German Economy Minister Michael Glos said.
The standing body would bolster the role played by observers, Glos said at an energy conference in Berlin today. The 27-member bloc should also improve its distribution network by investing in pipelines to move gas from suppliers in the north to customers in the south of Europe, he added.
European alternatives to supplies from Gazprom are limited and no final decision has been made on financing the planned Nabucco pipeline, a rival route intended to carry central Asian gas to Europe by 2013.
Turkish Prime Minister Recep Tayyip Erdogan yesterday threatened to “review” his support for Nabucco in light of the slow of progress in Turkey’s EU membership bid, before later backing down.
Nabucco
“It can’t be that we swap one form of blackmail for another,” Glos said.
Russia and Ukraine must “honor their commitments so the full flow of natural gas is not disrupted again,” the EU said in a statement.
The suspension of shipments led to gas shortages in many part of central Europe and the Balkans, causing factories to be shut down and gas rationing to be introduced.
“To rebuild European consumers’ confidence is now a challenge for both Russia and Ukraine,” according to the Czech Republic, the holder of the EU’s rotating presidency.
Gazprom said the EU could have done more to help resolve the crisis.
“I wouldn’t hide my disappointment with the role of the European Union,” Medvedev said. While Gazprom’s partners such as Eni SpA and E.ON AG were ready to help resolve the question of gas transit with Ukraine, the EU wasn’t supportive of the idea, he said.
‘Absolutely Wrong’
The settlement came under attack from some quarters in Ukraine.
Oleksandr Shlapak, the first deputy chief of Ukrainian President Viktor Yushchenko’s staff, said the deal was worse than an offer made by Gazprom at the end of last year.
The agreed base price is “absolutely wrong,” he told reporters in Kiev today.
U.K. gas for delivery in February fell 1.7 percent to 54 pence a therm, according to broker Spectron Group Ltd.
The hryvnia strengthened as much as 3.6 percent to 10.1471 per euro today, the strongest since Dec. 12. The ruble climbed for the first time in five days against the euro, gaining 0.5 percent to 43.4190.
To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net
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