Azernews.Az

By Bloomberg

The risk of Russia cutting off natural gas supplies to Ukraine diminished after the countries agreed on prepayment conditions in talks brokered by the European Union.

Russian Energy Minister Alexander Novak and his Ukrainian counterpart Volodymyr Demchyshyn met Monday in Brussels after a dispute between the two countries over deliveries to rebel-held regions in the east of Ukraine threatened to disrupt gas flows.

Ukraine confirmed at the talks that it will continue paying for the fuel in advance under an interim deal signed in October, Novak said. Russia agreed for now not to charge its neighbor for gas delivered directly by OAO Gazprom to rebel regions in Ukraine under the winter package through March, he said.

“We didn’t sign any documents today because there was no need,” Novak told reporters in comments broadcast by Russian state TV channel Rossiya 24. “We currently have agreements in place since October 2014 and nobody’s canceled them. They are in effect until the end of March.”

The confirmation by Ukraine and Russia that the winter gas package will be implemented cuts the risk of supply disruptions to Europe, according to EU energy union chief Maros Sefcovic, who presided over the talks. Ukraine is the transit country for more than 10 percent of the EU’s gas.

“I am reassured that the supply of gas to the EU markets remains secure,” Sefcovic said in a statement.

Gas Prices

Next-month gas in the U.K., Europe’s biggest market, fell for a third day, dropping 1.9 percent to 47.68 pence a therm ($7.33 a million British thermal units) at 8:04 a.m. on the ICE Futures Europe exchange in London. The contract has declined 23 percent over the past year. The volume of all futures traded was 168 percent above the 100-day average for the time of day.

While Ukraine cut its reliance on Russian gas to 34 percent from 51 percent during the last year, the fuel remains a powerful weapon amid an 11-month insurgency by pro-Moscow rebels. Russia’s Gazprom started deliveries to conflict zones in east Ukraine on Feb. 19, saying people are freezing there after state-run Naftogaz halted supplies. The Moscow-based exporter demanded Ukraine pay extra to meet the cost of shipments, while Naftogaz refused and alleged Russia was failing to meet its fuel requests.

Under the agreement Monday, Naftogaz will pre-pay and order from Gazprom “sufficient quantities of gas to ensure covering all domestic consumption by Ukraine in March,” according to a statement by the European Commission. Gazprom agreed to deliver as much as 114 million cubic meters per day of pre-paid and ordered gas, the EU said.

Ukraine Prepayments

The parties agreed that the Ukrainian prepayments will cover only volumes supplied through mutually agreed collection points, Naftogaz said. Direct supplies by Gazprom through other delivery points to the self-proclaimed Luhansk and Donetsk republics will be discussed separately, under the deal.

Negotiators agreed to continue the three-way talks later this month to discuss summer deliveries. To date, there has been little progress as Naftogaz and Gazprom await an arbitration ruling over their main supply contract, which isn’t expected before next year.

Ukraine “maybe” won’t need a new gas discount from April as the fuel follows a decline in oil prices, Novak said. Demchyshyn told reporters his country is in a “sufficiently strong position.”

During the first 20 days of February, Ukraine cut gas consumption by almost 15 percent from a year earlier. It consumed 4.8 billion cubic meters of gas in March last year.

“There is no critical need for Ukraine to reach a quick deal, and Gazprom understands that too,” Demchyshyn said, adding that gas shipments from Europe are sufficient and demand is declining in Ukraine.