Russia Cuts Gas Flow To Ukraine

Russia cut off gas supplies to Ukraine on June 16, saying Kiev had missed a deadline to pay nearly $2 billion of a total debt of more than $4 billion that it owes for past gas deliveries. Now, Moscow says, Ukraine must pay in advance for any gas it receives.

Russia's government-owned Gazprom also said Kiev must not interfere with the flow of Russian gas through Ukrainian pipelines destined for its EU customers.

During the talks in Kiev, each side clung to its negotiating position. Moscow's has been to keep the price of gas at the original level set in a 2009 contract of $485 per 1,000 cubic meters, but at the same time to waive an export tax that would reduce the price to $385.

Kiev's position has been that the tax waiver was simply a way for Moscow to exert leverage on its smaller neighbor because it could always restore the duty.

During a meeting in Gorki, outside Moscow, Gazprom CEO Alexei Miller told Russian Prime Minister Dmitry Medvedev, "Thanks to the unconstructive position of the Ukrainian government, today a prepayment system was introduced."

Reuters quoted a source at Gazprom as saying it had reduced the gas flow to Ukraine on June 16, and Ukraine's energy minister, Yuri Prodan, confirmed that the country had received no gas that day. Still, Ukraine has enough gas in storage, almost 14 billion cubic meters, to accommodate its needs until December, according to the Ukrainian gas company Naftogaz.

Ukraine's pipeline from Russia also carries gas to EU countries, but Gazprom spokesman Sergei Kupriyanov said Ukraine was obliged not to siphon any of it for its own use. Nevertheless, Gazprom has notified the European Commission of a "possible disruption" of the gas flow if Kiev doesn't meet this obligation.

Tim Ash, an energy analyst at Standard Bank PLC, told the Associated Press that Kiev could theoretically tap some gas meant for the EU, which wouldn't hurt European customers now, but could make it harder for them to stockpile gas for the winter.

In Brussels, EU spokeswoman Sabine Berger said the bloc had no information about changes to its gas supply.

By Andy Tully of Oilprice.com