By Eduard Gismatullin and Stephen Bierman
Jan. 13 (Bloomberg) -- Russia and Ukraine signed a natural- gas monitoring deal to allow supplies of the fuel to resume to the European Union later today after a six-day halt.
Jose Barroso, president of the European Commission, said an agreement allowing shipments to be measured was approved by all sides. OAO Gazprom, supplier of a quarter of the region’s gas, said transit flows could start at 8 a.m. central European time. Deliveries may reach European consumers between 14 and 16 hours later, Ukraine’s Deputy Prime Minister Hryhoriy Nemyria said.
Gas prices in the U.K., Europe’s biggest market, slid 10 percent yesterday as Gazprom pledged to restore supplies once independent monitors are in place at pumping stations. Prices surged 24 percent last week after Gazprom turned off the taps following a disagreement with Ukraine over prices and debt.
It’s “not the end of the saga,” said Alfa Bank Chief Strategist Ronald Smith by telephone from Moscow 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.”
The cutoff had disrupted supplies to at least 20 European countries, with the Balkans the hardest hit. It also renewed calls for the EU to diversify its sources of energy away from Russia. Gazprom suspended transit flows through Ukraine on Jan. 7 after accusing Ukraine of taking gas for its own use, a charge the country denies.
‘May Decline’
“Gazprom’s share of the European energy market may decline,” Victor Mishnyakov, an analyst at UralSib Financial Corp. in Moscow, said in an investor note.
Ukrainian President Viktor Yushchenko ordered his government to ensure the transit of Russian gas to Europe, according to a statement on his Web site. Prime Minister Yulia Timoshenko said the former Soviet republic will pay for so- called “technical gas” as soon as both sides sign an agreement for this year’s supplies.
Gazprom is “eager” to resume supplies to the 27-nation bloc, a spokesman for Prime Minister Vladimir Putin said yesterday, after last-minute wrangling threatened to scupper a deal.
Ukraine had wanted Gazprom to supply the 21 million cubic meters of gas a day it takes to power the pipeline network, Dmitry Peskov said. The cost of these flows should be met by Ukraine, he said.
Supplies Suspended
“We are about to end a six-day war between Gazprom and European customers,” Ukraine’s Nemyria told reporters in Brussels, adding that it would take some time after the resumption of flows for supplies to reach European nations.
Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. 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.
Russian Deputy Prime Minister Igor Sechin told reporters in Moscow that the dispute had cost Gazprom $800 million. The Russian company plans to expand its underground storage capacity in Europe to secure future European supplies.
Day-ahead U.K. gas fell 9.7 percent to 56 pence a therm yesterday. That’s equal to $8.33 a million British thermal units. A therm is 100,000 Btus. Within-day prices surged 24 percent last week.
EU gas-monitoring teams have already started arriving at Ukrainian border gas stations, NAK Naftogaz Ukrainy, the state energy company, said yesterday.
Monitoring Mission
Observers from Austria, Hungary, Italy, France and the Czech Republic started work at the Drozdovychi, Uzhgorod, Beregovo and Tekovo metering stations near Ukraine’s western border and at Orlovka in the south, Naftogaz said.
Once gas starts to flow in Ukraine, it may take about 36 hours for it to reach EU states, Czech Prime Minister Mirek Topolanek, whose country currently holds the EU’s rotating presidency, said on Jan. 11.
Supply shortfalls across the continent continued for a sixth day. Slovakia warned it’s “on the brink of blackout” while Hungary halted deliveries to Serbia and Bulgarian gas imports were halted because of “technical reasons.”
Slovakia was planning to restart a nuclear power generator, in violation of EU rules, unless gas supplies resumed “within several hours,” Prime Minister Robert Fico said yesterday. The country depends solely on gas flowing through Ukraine.
Slovak Reactor
Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s largest gas company, didn’t order fuel via Ukraine for yesterday. It said it can change the order as soon as it hears that supplies are going to be restored. Hungary has sufficient gas to cover the expected consumption yesterday.
Oleh Dubina, the chief executive officer of Naftogaz, said on the weekend that talks on a price for supplies of gas to Ukraine from Russia this year 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.
Gazprom is “open to discussions” to find a solution to the pricing issue, Deputy Chief Executive Officer Alexander Medvedev said in an interview with Bloomberg Television yesterday.
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.
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: Eduard Gismatullin in London at egismatullin@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net;
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