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Gazprom ready to finance supply of gas to European storage facilities

June 17, 2014, 0:17 UTC+3 MOSCOW

Gazprom may also sue Naftogaz of Ukraine in the Stockholm court of arbitration for 18 billion U.S. dollars

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MOSCOW, June 16, /ITAR-TASS/. Russia’s Gazprom is ready to increase the supply of gas to European underground gas storage facilities during winter at its own expense, Gazprom CEO Alexei Miller told the Rossiya 24 television channel on Monday, June 16.

“We are ready to increase the supply of gas to the European Union’s underground gas storage facilities at our own expense,” he said.

Miller said Gazprom was prepared to invest in the development of underground gas storage facilities in Europe.

He believes that if Ukraine fails to store 18 billion cubic metres of gas in its storage facilities for the coming winter, the Nord Stream and Yamal-Europe gas pipelines (as an alternative to the Ukrainian route) will not be able to meet European needs.

In his opinion, the construction of the South Stream pipeline will eliminate transit risks associated with Ukraine.

Miller said the price of gas transit via Ukraine depended directly on the price of gas for that country: the higher the price of gas, the higher the transit tariff.

The cost of transit is regulated by the relevant contract and revising it would mean reducing the security of Russian gas transit to Europe. The current transit tariff is a market one and regulated solely by the contract, Miller said.

Earlier in the day, Ukrainian parliament-appointed Prime Minister Arseny Yatsenyuk urged the National Energy Regulation Commission to set an economically justified tariff for the transit of Russian gas via Ukraine.

Gazprom started supplying gas to Ukraine against advance payments from 10:00 June 16 after trilateral consultations with Naftogaz of Ukraine and the European Commission had failed.

Naftogaz of Ukraine promised to ensure the security of gas transit to Europe in full compliance with the current contract with Gazprom signed on January 19, 2009 for the period ending in 2019.

Another lawsuit

Gazprom may also sue Naftogaz of Ukraine in the Stockholm court of arbitration for 18 billion U.S. dollars due to the Ukrainian company’s failure to take as much gas as was contracted in 2012 and 2013.

Under the agreement, the company has to pay for the contracted gas it has not taken.

A new lawsuit may follow the one for 4.5 billion Gazprom filed earlier in the day.

Ukrainian Energy and Coal Industry Minister Yuri Prodan said last week that the only way to settle the gas dispute with Russia is to take the matter to the Stockholm court of arbitration.

Prodan said Ukraine was ready to continue the gas talks “while waiting for the decision of the Stockholm court of arbitration”.

“We will disagree if any part of the price depends on a government decision. We want to change the entire pricing mechanism,” the minister said.

He said, though, that Ukraine would not file a lawsuit against Russia with the Stockholm court of arbitration until June 16.

“There is still time until Monday to resolve the issue,” he said.

Prodan said Ukraine might agree to a price ranging from 268.5 to 385 U.S. dollars per 1,000 cubic metres pending the Stockholm court ruling.

Russia abolished the zero duty on gas for Ukraine on April 3, which automatically raised the price of gas for Ukraine from April 2014 to 485 U.S. dollars per 1,000 cubic metres, an increase of more than 200 U.S. dollars from the price that was used until then.

Russian-Ukrainian agreement

In December 2013, Russian Gazprom and Naftogaz Ukrainy signed an addendum to the gas agreement in effect from January 19, 2009, under which the price of Russian natural gas for Ukraine was to be reduced by one-third to 268.5 U.S. dollars per 1,000 cubic metres from January 1, 2014, compared to 410 U.S. dollars per 1,000 cubic metres in the fourth quarter of 2013.

Moscow and Kiev also agreed that the discount would remain in effect as long as the key conditions were met, specifically timely payments for current supplies and repayment of debts.

At the end of the first quarter of 2014, Gazprom said it would have to raise the price of gas for Ukraine by more than 100 U.S. dollars to 385.5 U.S. dollars per 1,000 cubic metres because Ukraine had failed to pay the debt for the gas delivered in 2013 and had not made payments for current supplies.

The gas price of 385 U.S. dollars per 1,000 cubic metres offered by Russia to Ukraine is not the best one on the market, Ukrainian Energy and Coal Industry Minister Yuri Prodan said after trilateral talks with Russian and EU officials in Brussels on June 11.

“We have many proposals, including on reverse flow supplies at a price much lower than 385 U.S. dollars. Given the transit across Ukraine and back to European countries, we can say that Gazprom’s price can be lower than what European suppliers are offering now,” the minister said.

Russia proposed renewing a 100-U.S. dollar discount for gas supplies to Ukraine, but Kiev turned down the offer.

Yatsenyuk said his government was insisting on changes to the effective gas contract. “If gas is a political weapon, then this is a political weapon in the hands of the Russian government. If gas is a commodity, as it is in the rest of the world, we trade on the basis of a contract, not on the basis of whether Russia likes the Ukrainian government or not,” he said.

The current price of Russian gas for Ukraine is 485 U.S. dollars per 1,000 cubic metres. Ukraine is insisting on the price of 268.5 U.S. dollars. However, this week Gazprom lowered the price of gas supplied to Ukraine in April and May to 384.86 U.S. dollars per 1,000 cubic metres.

Prodan said an acceptable gas price for Ukraine could be within the range of 268.5 to 385 U.S. dollars.

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