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Europe’s Gas Saga With Russia And Ukraine Continues

It’s beginning to sound like a soap opera or an old Hollywood serial: Just when things appear to be settled, another danger rears up.

A month ago, with help from the International Monetary Fund (IMF) and the European Commission (EC), Ukraine paid off what was supposed to have been the last of its $3.1 billion debt to the Russian gas giant Gazprom, run by the Kremlin, ensuring an uninterrupted flow of fuel during the coldest part of the year.

Now, though, Gazprom CEO Alexei Miller has told Russian Prime Minister Dmitry Medvedev that Ukraine’s combined debt and penalties now stands at more than $2 billion. Meanwhile, a special winter gas discount for Ukraine expires at the end of March.

Medvedev said such problems can be worked out through negotiations. “We will see how it goes, we are open to discuss different options for cooperation,” Medvedev said.

Related: The 8 Major Geopolitical Catalysts Of 2015

Ukraine, too, appears to be open to discussion. “We’re trying to hold full-scale talks with the involvement of European partners,” Ukrainian Energy Minister Volodymyr Demchyshyn told a news conference in Kiev. He said he was optimistic about the outcome because of the recent drop in the price of crude oil and other fossil fuels.

Ukrainian Prime Minister Arseniy Yatsenyuk, however, said what Ukraine may or may not owe to Gazprom is not a matter of bilateral negotiations, but will be decided by the international arbitration court in Stockholm, which settles international disputes on commercial and other matters.

“I would like to remind once again … regarding all these discussions on who owes to who: The Ukraine’s suit, the Naftogaz of Ukraine’s suit against Russian Gazprom is now in the Stockholm arbitration court, in which we request Gazprom to return $6 billion,” he told the Ukrainian government on Jan. 21. “The court will decide.”

Miller said Gazprom is committed to providing gas to Ukraine, and is similarly committed to the use of pipelines traveling through Ukraine to feed gas to Western Europe. “Gazprom has cooperated and will go on cooperating with Ukraine in accordance with the existing contracts for gas supply and transit,” he said in a statement issued Jan. 21.

Related: Expanding Russia Issues Europe An Ultimatum

Under the deal worked out in October 2014 by the EC and financed in part by the IMF, Gazprom has been giving Ukraine’s government-run gas company, Naftogaz, a discount of $100 for every 1,000 cubic meters of gas it receives.

But both Ukraine and Europe are wary of relying on Russia for gas as heavily as they already do. European customers rely on the same pipeline used to supply Ukraine, and disputes between Kiev and Moscow in the past decade have twice interrupted the westward flow of gas, in 2006 and 2009.

As Russia’s Western customers look for alternative sources of energy, Moscow has been looking east. In November, Russian President Vladimir Putin and Chinese President Xi Jinping signed a preliminary agreement under which Gazprom would provide China with 1.3 trillion cubic feet of gas per year through a pipeline, now being built, called the Power of Siberia.

By Andy Tully of Oilprice.com

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