Russia and Ukraine announced a deal yesterday to end the bitter dispute that has blocked Russian natural gas from Europe for nearly two weeks and deeply shaken Europeans’ trust in the two as reliable energy suppliers.
The early morning agreement between Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko came after a day of intense negotiations.
Still, relief for millions of frustrated consumers and businesses could be days away.
The deal on gas prices is not likely to be finalized until at least today. If Russia turns on the taps immediately after the signing, it could take another day for the gas to travel hundreds of kilometers across Ukrainian pipelines to eastern Europe.
Russia stopped selling gas to Ukraine for domestic use on Jan. 1 in a dispute over prices. On Jan. 7, Moscow then halted all shipments to Europe via Ukraine, alleging that Ukraine was siphoning off Europe-bound gas.
Ukraine said Russia was not sending enough “technical gas” to push the rest further west.
Europe gets about 20 percent of its total gas needs from Russia via Ukraine’s sprawling pipeline network, but countries in eastern Europe like Bulgaria and Slovakia are totally dependent on Russian gas.
The conflict has been complicated by geopolitical struggles over Ukraine’s future and over lucrative export routes for the energy riches of the former Soviet Union.
Under the terms announced yesterday, Ukraine will pay 20 percent less than the European “market price” price for gas this year, which Russia says is US$450 per 1,000m³. That’s more than twice as much as the US$179.50 Ukraine paid last year.
However, natural gas prices for Europe are expected to fall sharply later this year, because of the fall in oil prices.
By mid-summer, Ukraine could be paying as little as US$150 for 1,000 cubic meters, said Ronald Smith of Moscow’s Alfa Bank.
Russia has won a key principle, however, that Ukraine must pay more for its energy supplies.
Ukraine is also heavily dependent on Russian gas and it is not clear how it will pay for the huge amount needed to run its outdated factories and heating systems.
Moscow and Kiev spent the last two weeks blaming each other for the energy debacle, but amid the arguing, both countries’ images were wounded.
“The best part for Russia is they get the gas to the customers. This has been pretty damaging” to Russia’s reputation as a reliable energy partner, Smith said yesterday.
“[Ukraine] probably lost as well, because the European Union was looking at them as a possible member and may now be wondering if it’s worth the effort,” he said.
Russia also emerged without having to pay a higher gas transit price this year.
Putin said yesterday that Russia offered Ukraine the “20 percent discount” on the condition that the gas transit price does not change for this year.
Beginning next Jan. 1, however, Ukraine will pay full price for gas and Russia will pay market prices for transit, he said.