Russia Halts Ukraine Gas Supplies

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - Russia's conflict with Ukraine has escalated with state-owned natural gas company Gazprom (PINK:OGZPY) (Moscow) announcing that it has cut gas supplies to Ukraine over non-payment of debt.

The company said talks over the repayment of billions of euro of debt and the price of future gas supplies to Ukraine's Naftogaz failed and, as promised, it will now only supply gas that has been prepaid for. One third of Europe's gas is supplied by Russia and half of that comes through Ukraine. The move has already seen gas prices jump in Europe but European gas supplies remain high due to the summer period.

The cyclical gas row between both countries has been made significantly more problematic after Russia sent troops into the country's Crimea region a few months ago, claiming it was to support pro-Russian elements. Russia's actions have been roundly condemned by the European Union (E.U.) and the U.S..

In a statement, Gazprom said: "in full compliance with the effective contract, Gazprom switched Naftogaz of Ukraine to a prepayment of gas supplies. The decision was made owning to persistent non-payments by Naftogaz. The overdue debt of the company for the supplied Russian gas equals $4.458 billion: $1.451 billion for November and December 2013 and $3.007 billion for April and May 2014. The proforma invoice for June payments also were not received. Starting from today the Ukrainian company will receive only prepaid volumes of Russian gas."

On the same day, Gazprom filed a lawsuit in the Stockholm International Arbitration Court seeking to recover the $4.5 billion in debt from Naftogaz.

In April this year, Gazprom cancelled its significant 29% discount on gas prices for Ukraine, which had been granted in December 2013 by Russian President Vladimir Putin. That decision was blamed on non-payment of debt also but the discount was conditional on Ukraine abandoning a trade pact with the E.U. and getting closer to Russia. For additional information, see April 3, 2014, article - Russia's Gazprom Eliminates Discount to Ukraine, Increases Gas Prices 29.1%.

According to the International Energy Agency (IEA) the Ukraine is the largest transport corridor of Russian gas to Europe, but it accounts for just less than half of the total of 167 billion cubic metres (bcm) of gas imports from Russia. New routes from Russia into Europe include direct flows to Germany via Nord Stream, through the Baltic States, Poland and Germany via Belarus, direct flows to Finland and direct flows into Turkey via the Blue Stream pipeline.

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