EU Gas Supply Safe Until March After Russia-Ukraine Deal

Moscow and Kiev have agreed that Russian gas shipments to all of Ukraine, including some rebel-held areas of eastern Ukraine, will continue through March, and so won’t interfere with the flow of fuel to Russia’s customers in the European Union, for now at least.

The agreement ends a dispute between the two countries’ state-run gas companies, Russia’s Gazprom and Ukraine’s Naftogaz, which had threatened a previous deal, mediated by the EU, to ensure gas supplies to Ukraine and the EU throughout the bitter winter months.

It also brought into question whether Russia and Ukraine could reach a subsequent agreement on deliveries of Russian gas during warmer seasons, beginning April 1.

Russian Energy Minister Alexander Novak and his Ukrainian counterpart, Volodymyr Demchyshyn, arrived at the deal the night of March 2 in Brussels under the mediation of Maros Sefcovic, the European Commission’s vice president for energy.

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“I am reassured that the supply of gas to the EU markets remains secure,” Sefkovic said. Later the EU energy chief added, “I am satisfied that we managed to safeguard the full application of the winter package for the supply needs in Ukraine.”

Ukraine’s Demchyshyn said only that both sides had agreed “to obey the rules” until the end of March.

And speaking for Russia, Novak issued a statement on his ministry’s Twitter account saying, “We agreed to discuss questions of summer gas supplies and gas pumping into [Ukraine’s gas storage] at the end of March.”

The arrangement will require Ukraine’s Naftogaz to order as much gas as it estimates it will need for the month of March, and pay for it in advance, while at the same time guaranteeing that none of the Russian gas meant to reach EU customers is diverted for use in Ukraine. Gazprom, meanwhile, will commit to providing the gas as soon as it’s paid for.

Eastern Ukraine is occupied by pro-Russian separatist rebels set against Ukrainian government forces. Both sides are now observing, to varying degrees, a shaky cease-fire. The Ukrainian government recently cut supplies of gas to the rebel-held areas, and Russia is filling that vacuum with fuel from Gazprom.

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Both the Russian and Ukrainian governments issued a statement at the Brussels talks conceding that the subject of supplying gas to eastern Ukraine “is highly complex in legal, technical and political terms,” and said they would hold further talks on the matter.

The diversion of gas meant for EU countries has been a sore spot in relations between Ukraine and Russia for years. European customers get roughly 30 percent of their gas from Russia, about half of it flowing through Ukrainian pipelines. In the past decade, disputes over diversions have twice led Russia to cut off the gas supply altogether to punish Ukraine.

As a result, EU nations have been scrambling to find alternate sources of gas, while Russia, too, has been looking to bypass Ukraine altogether to keep its EU market share. One such alternate route, the Nord Stream, pipes gas under the Baltic Sea to Germany. A second alternative, the South Stream, had been in the works but was ended by the EU, which is seeking to wean itself off Russian gas altogether.

By Andy Tully of Oilprice.com

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