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Russia Sends Cheap Energy To Ukraine To Avoid Crimea Blackouts

Russia says it will sell Ukraine coal and electricity at low prices to allow it to keep providing power and transport services to Crimea, the peninsula that Russia annexed in March.

Kiev said Dec. 26 that it had no choice but to cut bus and train services to the peninsula because of the bloody pro-Russian separatist conflict in eastern Ukraine, which was preventing it from extracting the coal it needs to feed the country’s power plants.

The very next day, Dmitry Peskov, Russian President Vladimir Putin’s spokesman, told Tass that Moscow will supply the energy resources at domestic Russian prices, which are lower than in Ukraine, and without advance payment. He said this was to demonstrate Moscow’s generosity to the people of Ukraine during the winter holiday season.

Related: Putin: Battered, Bruised But Not Broken

“Due to the critical energy situation, Putin took a decision on such supplies regardless [of] the absence of prepayment,” Peskov said. “This proves President Putin’s political goodwill to provide support for Ukrainians, particularly before [the] New Year.”

Ukraine immediately responded, saying it was ready to sign on to such a deal. Energy Minister Volodymyr Demchyshyn said Saturday on the ministry’s official Facebook page, “Ukraine is ready to urgently conclude an agreement for the supply of electricity from Russia’s energy market.”

In the posting, Demchyshyn, citing open sources of information, said the December price of electricity within Russia is about $41 per megawatt. In Ukraine it is more than $54 per megawatt.

Russian Deputy Prime Minister Dmitry Kozak didn’t say how much electricity Moscow planned to sell to Ukraine, but in an interview with Rossiya 24 television, he had a figure for coal: 500,000 metric tons for the current month, with additional deliveries of 500,000 metric tons in subsequent months, depending on whatever deal Moscow and Kiev can arrange.

In Kiev, Ukrainian President Petro Poroshenko promised that his country would provide power to Crimea if it gets enough electricity from Russia. “If Ukraine has electricity, it may be supplied to Crimea,” he said. “If Ukraine does not, then there will be rolling blackouts, first of all in Crimea, as simple as that.”

The deal appears to be the result of talks between Demchyshyn and Russia’s Energy Ministry that began during the week ending Dec. 27.

Related: Ukraine’s Next Energy Minister Will Be Bought and Paid For, As Usual

Until 2014, Ukraine made use of its resources in the east for between 4 million and 5 million metric tons of fuel, according to data from the country's Ministry of Energy and Coal Industry. As a result, the country was self-sufficient in electricity until the fighting in the east interrupted coal supplies to facilities that generated an estimated 40 percent of Ukraine’s power.

With much of Ukraine’s energy needs being met, Kozak said he hoped Crimea could now rely on a steady flow of energy, but didn’t say whether the transportation delays had been resolved. Friday’s blackout was the second of the past week.

The reason for the rail transport cutoff was to “ensure the safety of passengers,” according to Ukraine’s state rail company, Ukrzaliznytsia. The country’s security services gave the same reason for the suspension of bus service to the peninsula. It warned of possible attacks on the vehicles by “armed groups, extremist parties and the military aggression of the Russian Federation.”

By Andy Tully of Oilprice.com

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