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March
05
2018

Ukraine Freezes After Russia Halts Gas Deliveries
Tyler Durden

Last week, Russia's state-run gas giant and quasi-monopolist when it comes to European natgas supplies, Gazprom, announced it would not restart shipments of natural gas to Ukraine's Naftogaz starting March 1 after the two sides failed to reach an agreement, Gazprom deputy chairman, Alexander Medvedev, told journalists.

Russian gas deliveries to Ukraine were supposed to restart on Thursday following a foreign court ruling aimed at ending years of disputes between Kiev and Moscow, including two halts to Russian gas supplies to Europe through Ukraine. But Gazprom unexpectedly refused to resume deliveries, returning the prepayment for supplies made by Kiev, claiming amendments to a contract had not been completed.

The decision came as the sides reportedly failed to extend a supplemental agreement to the current gas contract,RT reported.

“So far, the supplemental agreement to the operating contract with Naftogaz has not been approved, and that is a compulsory condition for launching the shipments,” Medvedev said. "So, we have to recover the amount paid by the company in full. And it is obvious that the shipments in March won’t start."

In response, Ukraine's state monopoly said that Gazprom had failed to deliver prepaid gas. Naftogaz is reportedly planning to claim damages for supply failure from the Russian energy major.

And while the long-running dispute may, but likely won't, be resolved in court, Ukraine has suddenly found itself without heat and on Friday urged schools to close and factories to cut production, while residents shivered as the country strained to save on gas supplies.

The decision coincided with freezing temperatures all over Ukraine, and the government called on Friday for measures to reduce consumption.

"Starting today, we recommended ... to stop the work of kindergartens, schools and universities," Ukraine energy minister Igor Nasalyk told lawmakers, while urging Ukrainian companies to adjust their operations to save gas, while power companies were ordered to switch to fuel oil where possible.

Nasalyk said these savings measures would be in effect until Tuesday, when temperatures are expected to rise.

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Meanwhile, on Friday, Gazprom director Alexei Miller said that the company would immediately turn to the Stockholm arbitration court to break its contract with the Ukrainian operator Naftogaz, Russian news agencies reported. A ruling by the same court last year was meant to halt disputes over gas prices and shipments, which had often been a proxy for political disputes between Moscow and Kiev. The court set a price and ordered Kiev to resume purchases it had cancelled following the breakout in "proxy" violence between the two nations in 2014.

Also on Friday, Naftogaz said that Gazprom had not only refused to resume deliveries meant for it, but lowered the pressure in gas pipelines by 20 percent and minimized sales to other customers. In a statement, Naftogaz said that Gazprom was trying to portray Ukraine in a negative light and suggest that it was willing either to let its own population freeze or make it out to be "an unreliable transit company that takes the gas away" from European countries.

In response, Reuters reported today that Gazprom said there had so far been no impact on supplies through its pipelines to Europe, despite the sharp escalation in tensions with the key transit nation.

Russia’s Energy Minister Alexander Novak told European Commission Vice President Maros Sefcofic in a phone conversation that gas transit would not be at risk until Gazprom and Naftogaz fully terminated their agreement.

“Minister Novak assured that the gas transit from Russia to Europe is under no threat. The transit remains as reliable as in the past,” the ministry said.

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Kiev and Moscow have a history of clashing over prices and obligations under contracts for the delivery of Russian gas to Ukraine as well as transit to Europe. The standoff in the winter of 2006 triggered supply disruptions, with Russia accusing Ukraine of stealing gas intended for the European market.

The gas giants are currently involved in a long-standing litigation over the terms of the current delivery contract. Ukraine’s lawyers are struggling for annulment of the so-called take-or-pay provision that obliges Kiev to purchase a minimum annual quantity of gas. Earlier this week, Naftogaz claimed it had won a $2.56 billion victory in another round of its legal battle with Gazprom.

 

 

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