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09 January 2009
Initial Deal Reached for Addressing Ukrainian-Russian Gas Spat
Longer-term European supply issues remain, U.S. says
Washington — Following meetings between top European leaders and Russia, Moscow has agreed to a plan that may allow natural gas to flow again to Europe, experiencing its first deep freeze of the season.
U.S. officials, who hailed the agreement as a welcome first step, believe that no matter what the end result of the negotiations is, the European Union (EU) still needs to grapple with some long-term energy supply issues. Otherwise, it will continue to be held hostage to the politics of single suppliers and bilateral disputes.
Although details have not yet been provided, EU monitors have been sent to Ukraine to address Russian gas company Gazprom’s claims that its gas is being siphoned from the pipelines running through that country.
What should have been resolved as a bilateral commercial dispute has “escalated dramatically” and has created a difficult situation for countries throughout Europe that depend upon gas supplies from Ukraine, Assistant Secretary of State Dan Fried told reporters in Europe on January 7.
“It underscores in the longer run the need for European countries to develop alternative sources of gas not controlled by any one country or any one company,” Fried said.
On January 6, the Russian company Gazprom, which provides 25 percent of Europe’s gas, had shut off all gas shipments to Ukraine, a major transit area for gas flows to central and Eastern Europe.
“Why is Bulgaria being penalized? Why is Slovenia being penalized? They haven’t done anything wrong. They have paid their bills,” Fried said. He noted that Bulgaria has already begun rationing gas and news reports say the country has only enough gas in storage to cover 30 percent of the country’s daily demand. There were also reports of cutbacks in Hungary, Croatia, Romania, Serbia and Macedonia.
Ukraine has been hard hit by the global financial crisis. And even though the country’s gas company, Naftogaz, has been paying below European market prices for gas, Russia says Ukraine owes Gazprom more than $2 billion for previous shipments and supplies.
Gazprom had been insisting that Ukraine begin paying the higher market prices, which some analysts estimate would boost the country’s energy bill by nearly 25 percent. But Naftogaz didn’t want to lock in higher prices now, when prices in energy markets are expected to drop later in the year. If it has to pay a higher price for the gas, Ukraine wants to boost what it charges Gazprom for pumping gas to the rest of Europe. Gazprom has been paying lower prices to Ukraine for this service than it pays to other pipeline operators in Europe. Over the last several days, the two countries have been trading charges about each other’s actions to disrupt gas flows.
European leaders have expressed frustration with both countries, calling the gas shortfalls “unacceptable” and “in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities.”
This is not the first time Gazprom has shut off shipments to Europe. The last time was in 2006. These actions will certainly damage its reputation worldwide as a reliable supplier, Fried said.
He said the current Ukrainian-Russian dispute needs to be “resolved on commercial terms.”
“In the end Ukraine will have to pay west European prices for gas,” Fried said, adding that they are going to be lower in 2009 than they were in 2008.
He called on the European Union to speak with one voice on energy issues “so that individual European countries aren’t crippled by gas disputes involving other countries.”
