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Ukraine Will Have Russian Gas, For Now

Kiev’s payment of $150 million to the Russia’s government-owned gas monopoly Gazprom will keep supplies flowing into Ukraine for at least the first quarter of 2015.

Gazprom said Dec. 31 that Ukraine’s gas company, Naftogaz, had paid in advance for 1 billion cubic meters of Russian gas, including 300 million cubic meters fuel it had paid for in December but had not used. That amount is to be shipped in January.

Russia and Gazprom have not been shy about simply cutting off the flow of gas to Ukraine for non-payment. It did so in 2006 and 2009 and again just last June. In doing so it threatened gas supplies to European Union customers, who get about one-third of their gas from Russia, half of it piped through Ukraine.

Related: Gazprom Announces South Stream Buy Out

Under a deal brokered in October by the European Union between Gazprom and Naftogaz, the Ukrainian company agreed to pay $378 per 1,000 cubic meters to cover the fourth quarter of 2014 and $365 per 1,000 cubic meters in the first quarter of 2015. This also ensured gas supplies to the EU.

To ensure deliveries, Ukraine had to pay off $3.1 billion in debt for previous gas deliveries. It made an initial installment of $1.45 billion to Gazprom on Nov. 4. A second payment of $1.65 billion, due by year’s end, was paid on Dec. 24 to ensure gas deliveries in January.

The concern over gas supplies comes at a time when relations between Russia and Ukraine are at their lowest. In February 2014, a popular uprising over the country’s future drove Ukraine’s president, Viktor Yanukovich, out of office, and he fled to Russia. Yanukovich favored closer ties with Moscow; opponents wanted to align the country with the EU.

The next month, Moscow annexed the Ukraine’s Crimea peninsula, and is suspected of providing both men and weapons to a violent pro-Russia separatist movement in eastern Ukraine, although the Kremlin denies any Russian involvement. During this period it also raised the price Ukraine must pay for Russian gas.

After months of bickering and reluctant debt payments by Ukraine, the EU-brokered arrangement, Kiev’s slate with Russia finally appears to be clean. As a result it may be able to rely on an ample supply of gas for the rest of the current winter, and Naftogaz CEO Andriy Kobolyev says it can resume its role as a reliable conduit of fuel to the EU.

Related: Natural Gas Overwhelmingly Replaces Coal

“We have fully complied with the agreements reached in Brussels to ensure stable supply of Russian gas to Europe,” Kobolyev said in a statement on Dec. 31. “Together with the rest of Gazprom’s European clients, we look forward for the Russian counterparts to comply as well.”

The current arrangement is widely reported to cover Russian gas deliveries to Ukraine through March. But in Moscow, Russian Energy Minister Alexander Novak said Dec. 22, “We believe that up until 2019, the current contract will be in force.”

That gives Ukraine five years in which to budget for its gas supplies. But Novak added, "What happens to transit gas after 2019 is not being discussed today.”

By Andy Tully of Oilprice.com

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