By Maria Ermakova and Daryna Krasnolutska
Jan. 8 (Bloomberg) -- Russia and Ukraine resumed talks on a dispute over natural-gas prices that disrupted shipments to Europe for the second time in three years, spurring doubts over the former Soviet Union’s role as a reliable energy supplier.
OAO Gazprom Chief Executive Officer Alexei Miller held overnight talks in Moscow with his counterpart at NAK Naftogaz Ukrainy, Oleh Dubina. Both were due in Brussels today to meet European Union officials. Dubina may return to Moscow for further talks afterwards.
Since a previous dispute in 2006, European nations have diversified their sources of fuel and improved inventories. They are also using more gas, the source of 24 percent of the world’s energy in 2007, to reduce emissions linked to global warming. Gazprom suspended transit through Ukraine yesterday after saying Kiev wasn’t passing on fuel intended for European customers.
Both parties “should come to an agreement pretty soon,” said Christian Kleindienst, senior credit analyst at UniCredit SpA in Munich. “The stakes are too high and neither side’s bargaining position is strong enough.” A deal could take place by “mid to end-January.”
Market Price
Russian President Dmitry Medvedev spoke with his Ukrainian counterpart Viktor Yushchenko by phone yesterday, the first high-level contact between the two sides since negotiations broke off on Dec. 31. Medvedev said Ukraine should pay the full market price for its gas and clear its debt with Russia. Each side blamed the other for the shutdown of the transit route.
Russia’s ruble climbed the most in five days against the euro and Ukraine’s hryvnia rose after the resumption of talks.
Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. The Russian exporter said its overall deliveries to Europe were cut by about 60 percent yesterday.
“Russia’s motivation isn’t exclusively financial,” David Hauner, a London-based economist at Bank of America Corp., said in a Bloomberg Television interview today. “In this tough time for the Russian government, with lower oil prices and a weaker ruble, they want to show strength. That always comes across well with the public.”
Disrupted Supplies
At least 19 nations have been affected by the shutdown, mainly in central and eastern Europe.
RWE Transgas, the Czech Republic’s biggest natural-gas trading company, said domestic fuel supplies remain sufficient even as supplies from Russia remain stopped for a second day.
Hungary partially lifted gas use restrictions though it said it would reimpose them if needed, according to a statement from Mol Nyrt., the country’s biggest refiner.
OMV AG, Austria’s largest oil and gas producer, said today it’s still not receiving gas from Russia.
Italy has enough gas reserves for the next two months and the country relies less on imports from Gazprom than others in Europe, Edison SpA Chief Executive Officer Umberto Quadrino was cited as telling Il Giornale in an interview.
European spot natural-gas prices declined today amid signs cold weather may give way to warmer temperatures in coming days, reducing heating demand.
Gas for within-day delivery in the U.K., Europe’s biggest gas market, fell 2 pence, or 3 percent, to 65.75 pence a therm, according to broker Spectron Group Ltd. data at 9:02 a.m. London time. That’s equal to $9.87 a million British thermal units. A therm is 100,000 Btus. Prices are still up 20 percent this week after the dispute intensified.
‘Real Problems’
European Commission President Jose Barroso said “real problems” may arise unless transit flows resume through Ukraine. Russian and Ukrainian officials have accepted a proposal to have international monitors verify gas transit, Barroso told a press conference in Prague yesterday.
Hungary and Slovakia are most exposed to the stoppage because they depend more on the fuel for energy than other European nations, according to UniCredit SpA. The dispute has already lasted longer than a similar conflict in January 2006 which interrupted fuel shipments to Europe.
The Czech Republic, which holds the rotating EU presidency, called a meeting of ministers in Brussels today with Gazprom and Naftogaz representatives to seek a “technical solution.”
‘End of Tunnel’
“There’s a certain light at the end of the tunnel of an otherwise very complicated bilateral situation,” Czech Prime Minister Mirek Topolanek said yesterday.
Gazprom delivered about 170 million cubic meters of gas to Europe yesterday, compared with 420 million to 450 million cubic meters a day normally, the company’s Deputy Chief Executive Officer Alexander Medvedev said on a conference call yesterday. Gas is being supplied through Belarus and from underground storage.
In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, and also cut shipments by 50 percent last March during a debt spat.
Russia cut shipments intended for Ukraine’s domestic market Jan. 1, and accused Ukraine of siphoning off gas destined for other buyers. Gazprom has warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues.
Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine, which paid $179.50 for its Russian gas last year, rejected a Gazprom offer last week of $250 for 2009 and says $201 would be fair.
Ukraine’s political leaders, Yushchenko and Prime Minister Yulia Timoshenko, are grappling with a financial crisis that has forced it to seek a $16.4 billion International Monetary Fund bailout.
The ruble gained 4.95 percent to 39.5476 per euro in limited holiday trading, from 41.6079 yesterday, at 11:22 a.m. in Moscow. The hryvnia increased 1.46 percent per euro to 11.2484, from 11.4155 yesterday.
To contact the reporters on this story: Maria Ermakova in Moscow on mermakova@bloomberg.net; Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net
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