Ukraine in emergency talks on gas

PASSING GAS::The EU is considering ‘reverse flows’ of gas back down pipelines after Russia twice raised its gas tariff for Ukraine, almost doubling it in three days

Reuters, KIEV and LONDON

Sun, Apr 06, 2014 - Page 6

Ukraine is in emergency talks with EU neighbors on the possibility of importing natural gas from the West, following a leap in the price it pays for Russian supplies, Ukrainian Prime Minister Arseny Yatseniuk said on Friday.

The urgency of securing affordable supplies has grown since Moscow — which annexed Crimea from Ukraine last month — raised its discounted gas tariff for Kiev twice this week, almost doubling it in three days.

Yatseniuk told reporters that one possibility was “reverse flows,” in which EU countries would send gas back down pipelines normally used in the transit of Russian supplies through Ukraine to the West.

“We are carrying out emergency talks with our European partners. One way to solve the problem is reverse gas from EU countries,” he said, adding that the main candidates for imports were Slovakia, Hungary and Poland.

Ukraine, which is in an economic crisis, covers half its needs with Russian gas. However, relations between the countries became hostile after protesters ousted pro-Moscow former Ukrainian president Viktor Yanukovych in February and Russia seized Crimea, leading to the worst East-West crisis since the Cold War.

Yatseniuk said it was possible to send gas down the pipelines in the opposite direction to the normal east-west flow.

“On a technical level, the idea of reverse gas raises no problems, and we hope our European partners make the right decision. If it will be to reverse, then it means the price for gas will be US$150 lower than Russian gas,” Yatseniuk said.

Russia has raised the price to US$485 per 1,000m3, meaning Gazprom, Russia’s monopoly gas exporter, charges Kiev about the same as other customers in central Europe. Ukraine will soon get money from the IMF under a new loan package, but faces large debts and its economy is in chaos.

The discounted price had been part of Moscow’s strategy of keeping Ukraine, a fellow former Soviet republic, under its political influence and discouraging Kiev from building closer ties with the EU. Yanukovych’s rejection of an EU trade and cooperation deal set off the protests that brought him down.

Yatseniuk has called the price increases unacceptable and warned that he also expects Moscow to increase pressure on Kiev by limiting supplies. Russia has frequently used energy as a political weapon in dealing with its neighbors, and European customers are concerned it might again cut off deliveries.

In Washington, the White House said that US Vice President Joe Biden spoke to Yatseniuk by telephone on Friday.

The White House said in a statement that Biden “emphasized the importance of improving Ukraine’s energy security and pledged to work closely with Ukraine and other countries across Europe to ensure that no country can use energy as a political weapon.”

“At this price for gas, Ukraine will most likely continue to import and ratchet up its debt,” independent energy analyst Valentin Zemlyansky said. “It will happen until either side decides to go to arbitration or Russia decides to cut off deliveries of gas to Ukraine.”

“If it goes to the court, we could expect a very long ordeal, but if Gazprom cuts supplies, Ukraine will take gas from volumes intended for European consumers,” he said.

One source who advises on gas contracts said that Russia offered the discount in 2010 in return for continuing use of its Black Sea naval base in the Crimean port of Sevastopol.

“With the seizure of Crimea, Moscow now could argue the rebate is no longer valid, hence raising the gas tariff to levels more normal in the region,” the source said. “This is, I would imagine, something Kiev may contest in arbitration as it didn’t hand over Crimea voluntarily.”

Russian gas meets about one-third of EU demand. About 40 percent flows through Ukraine, with the rest sent to Germany via the Nord Stream pipeline under the Baltic Sea or in the Yamal Europe pipeline through Belarus and Poland.