By Nick Comfort and Kateryna Choursina
Jan. 9 (Bloomberg) -- Russian natural-gas shipments through Ukraine to Europe were suspended for a third day as a dispute over arrangements for independent observers prevented an early resolution.
OAO Gazprom said Ukraine agreed to allow Russian representatives to be part of a group that will monitor transit flows to the West after earlier objections. NAK Naftogaz Ukrainy had called on Russia to take a “constructive position.”
Natural-gas prices in the U.K., Europe’s largest market, initially fell on speculation supplies could soon be flowing again through Ukraine after EU officials yesterday brokered a deal between both sides. Gazprom halted transit flows on Jan. 7 after accusing Ukraine of diverting gas intended for other buyers for its own use, a charge denied by the country.
Shipments should still resume shortly as “it is in Russia’s interest to take in as much revenue as soon as possible, because the state’s income has fallen on lower oil and gas prices,” Klaus Breil, a fund manager at Cominvest Asset Management in Frankfurt, said today in a television interview.
Gazprom Chief Executive Officer Alexei Miller said Ukraine had accepted Russia’s proposal for monitoring shipments.
“As soon as the document is signed and the commission’s representatives begin work at Ukrainian and Russian gas measuring stations, transit will become possible,” Miller told reporters in Sochi, Russia.
EU monitors are scheduled to arrive in Ukraine at 5 p.m. local time today, Naftogaz Deputy Chief Executive Officer Volodymyr Trikolich told a press conference. The Ukrainian utility will also allow “authorized” Gazprom experts to access its pipelines, he said.
The EU said today it’s “imperative” that shipments resume “without any further delay.” The monitoring group will consist of 18 experts and four European Commission members, the EU said.
Gas Prices
Miller earlier said that no progress has been made in talks with Ukraine over gas prices and fees, at the center of the disagreement that has hit supplies to at least 20 nations.
“Talks have resumed but there is an impression that the Ukrainian participants don’t have any mandate, any authority” to discuss price levels for 2009 or volumes of gas purchases, he told Russian President Dmitry Medvedev today. “We don’t see any readiness of Ukrainian participants in talks for signing the contract.”
Russia’s ruble advanced against the euro after Russian Prime Minister Vladimir Putin reached an accord with his Czech counterpart Mirek Topolanek, who holds the EU’s presidency, late yesterday that could pave the way for the resumption of supplies.
Breakthrough
The breakthrough came after talks in Brussels yesterday involving Miller, his counterpart at NAK Naftogaz Ukrainy, Oleh Dubina, and EU Energy Commissioner Andris Piebalgs.
The agreement “should lead” to Russian gas supplies to the EU being restored, the Czech presidency said on its Web site.
Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. The Russian exporter, which provides a quarter of Europe’s gas, said its overall deliveries to Europe were cut by about 60 percent on Jan. 7.
The deal followed mounting political pressure from EU leaders for gas supplies to be restored.
Both French President Nicolas Sarkozy and Germany’s Merkel urged Russia to renew shipments of gas to Europe. Russia must “respect” its contractual commitments, Sarkozy told a joint press conference in Paris yesterday. “Russia has to hold to its obligations,” Merkel said.
Higher Fees
Yesterday, Putin said Russia was prepared to pay a higher transit fee to send gas through Ukraine should its neighbor pay European prices for its gas. Naftogaz said it was ready to “guarantee 100 percent” of Russian gas transit supplies to Europe.
Putin’s press service said Russia was insisting on having monitors on both its border into Ukraine and at exit borders.
Ukrainian President Viktor Yushchenko spoke with European Commission President Jose Barroso yesterday by telephone and confirmed Ukraine is prepared to immediately resume Russian gas transit, according to a statement from Yushchenko’s office.
U.K. natural-gas for the week-ahead declined after the deal was reached. Week-ahead gas fell as much as 1.75 pence, or 2.9 percent, to 58.50 pence a therm, according to broker ICAP Plc. That’s equal to $8.93 a million British thermal units. A therm is 100,000 Btus. Within-day gas prices surged 23 percent this week after the conflict between Russia and Ukraine intensified.
Supply Shortfalls
Ukraine, Romania, Bulgaria, Greece, Turkey, Macedonia, Serbia, Czech Republic, Slovakia, Bosnia-Herzegovina, Slovenia, Austria, Hungary, Italy, Croatia, Moldova, Turkey, Poland, Germany and France have all registered supply shortfalls this week since the cutoff.
RWE Transgas, the Czech Republic’s biggest gas trader, has already dispatched an observer to join the monitoring team, the company said in an e-mailed statement. Two representatives of OMV AG, Austria’s largest oil and gas company, will also join the group.
GDF Suez SA said it will send four Russian-speaking technicians as part of the European team, while Italian Industry Minister Claudio Scajola said representatives of Eni SpA will also join the monitoring group. E.ON AG, Germany’s biggest utility, said it will send pipeline experts to Ukraine.
Gazprom delivered about 170 million cubic meters of gas to Europe on Jan. 7, compared with 420 million to 450 million cubic meters a day normally, Deputy Chief Executive Officer Alexander Medvedev said on a conference call on Jan. 7. Gas is being supplied through Belarus and from underground storage.
Previous Spat
In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.
Russia halted shipments intended for Ukraine’s domestic market Jan. 1. 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, reflecting the average price in countries bordering Russia’s neighbor. Ukraine, which paid $179.50 for Russian gas last year, rejected a Gazprom offer last week of $250 for 2009 and says $201 would be fair.
Putin said yesterday Russia would be prepared to double the fee it pays to send gas through Ukraine, if its neighbor paid market prices for supplies. Russia is ready to pay $3.40 per 1,000 cubic meters of gas over 100 kilometers (62 miles), up from $1.70, Putin told reporters at his residence near Moscow.
The company is still owed $615 million by Ukraine, Gazprom’s Medvedev said earlier this week in London. Ukraine disputes the debt.
Ukraine’s leaders, Yushchenko and Prime Minister Yulia Timoshenko, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.
The ruble rose 4.2 percent to 39.9473 against the euro at 1:50 p.m. in Moscow, from 41.7027 yesterday.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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