Azernews.Az

By Bloomberg

Russia’s state-run gas exporter demanded Ukraine pay for direct shipments to rebel-held areas of the country, re-igniting a long-running dispute over energy and raising the prospect of a total halt in supplies.

OAO Gazprom Chief Executive Officer Alexey Miller said Ukrainian counterpart NAK Naftogaz Ukrainy must pay for volumes shipped to eastern Ukraine or risk violating a deal brokered by the European Union in December. Naftogaz said the demand was unjustified.

Ukraine is dependent on supplies from Russia and gas has become a crucial element in the crisis between the two countries. That has implications for the rest of Europe because Ukraine’s Soviet-era pipeline network carries about 40 percent of Gazprom’s exports to Europe. Russia stopped shipments in 2006 and 2009 during cold winter months because of payment disputes with Ukraine.

“A new gas dispute is inevitable before the end of this week,” said Alexander Paraschiy, an analyst at Concorde Capital in Kiev. “Still, European consumers are unlikely to suffer because of the warm weather.”

European gas markets reacted nonetheless. U.K. front-month gas, a European benchmark, jumped as much as 2.6 percent on the ICE Futures Europe exchange in London, the most since Feb. 12.

“We expect that gas transit to the EU will not be affected by the situation in the east of Ukraine,” European Commission spokeswoman Anna-Kaisa Itkonen told reporters in Brussels on Tuesday.

Rebel Provinces

The latest dispute centers on Gazprom’s decision to make direct shipments to provinces in eastern Ukraine held by Russian-backed rebels who oppose the government in Kiev. Naftogaz must pay about $4 million a day for that gas, based on Gazprom data on volumes supplied.

Without extra cash, Ukraine won’t receive Russian gas, Miller said in a statement today.

Previous payments cover only 219 million cubic meters of fuel as of today, Miller said. That may last until the end of the week.

If prepaid supplies are used up, it risks “a complete termination of Russian gas supplies to Ukraine,”, which creates “serious risks for gas transit to Europe,” Miller said.

Gazprom claims Naftogaz, Ukraine’s state energy company, owes it more than $2 billion, and has demanded upfront payment to keep gas flowing through the winter months when consumption peaks.

Contract Terms

Naftogaz on Monday asked Gazprom to explain why only 47 million cubic meters of gas was delivered on Sunday against the 114 million cubic meters agreed to in the EU-negotiated accord. The company said in statement today it won’t make any further payment until Gazprom stick to the terms of the contract.

The renewed gas dispute comes as fighting between Russia- backed rebels and Ukrainian government forces persists in the east of Ukraine, defying a cease-fire agreed to in Minsk this month.

Naftogaz had been importing about 30 million cubic meters of Russian gas before Feb. 19. It asked for the increased supplies after Gazprom said it started deliveries to eastern separatist regions and would draw down cash for those shipments from Naftogaz’s advance payments.

“Naftogaz likely will not want to send a new advance payment for Russian gas because it says it’s not ordering deliveries to the east of the country and can’t trace these supplies,” Concorde Capital analyst Paraschiy said.