OAO Gazprom (GAZP) sent Ukraine’s state-run energy company a $7 billion bill for failing to import agreed natural-gas volumes last year, in an echo of a conflict that twice disrupted shipments to European customers in recent years.
NAK Naftogaz Ukrainy notified Gazprom in advance that it would import less gas than contracted, the company’s press service said Jan. 26, confirming the receipt of the bill from the Moscow-based company.
The demand comes as Ukraine seeks to curb dependence on Russian fuel imports by sourcing gas from other producers and developing its own resources. Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, last week signed a deal to help develop Ukrainian shale.
Ukraine reduced gas consumption as its economy shrank and the country struggled to restart international aid. Gazprom, the world’s biggest gas producer, has repeatedly disagreed with Ukraine over import prices and volumes. The Russian gas exporter twice cut supplies in freezing temperatures from 2006 to 2009, interrupting gas transit flows to Europe. Ukraine sends gas from Russia to the European Union via Soviet-era pipelines.
“The contract volumes that were agreed a long time ago do not correspond to the economic situation,” Lev Snykov, a partner at Greenwich Capital in Moscow, said by phone yesterday. “Maybe there will be mutual concessions. I don’t think there will be a third gas war.”
Gazprom and Naftogaz signed the current 10-year supply contract in January 2009, ending the most recent standoff. Sergei Kupriyanov, a spokesman for Gazprom, didn’t respond to calls or texts to his mobile phone seeking comment on the bill.
Seeking lower gas imports and prices, Ukraine has asked Russia to revise the accord that Prime Minister Mykola Azarov has called “unfavorable and enslaving.” It was signed by his predecessor Yulia Tymoshenko, who is now imprisoned for abuse of office over the deal.
Russia expects Ukraine to enter its customs union with Belarus and Kazakhstan, while attempts to negotiate a deal for control of the country’s gas pipelines haven’t been successful.
The contract obliged Ukraine and Russia to agree in writing on revisions at least six months before the start of the year, Gazprom said in January 2012, when the Ukrainian partner said it was allowed to curb imports to 27 billion cubic meters. Naftogaz reiterated on Jan. 26 that the agreement allows it to cut imports.
Gazprom Chief Executive Officer Alexey Miller said in June 2012 that if Ukraine doesn’t meet its annual take-or-pay obligations, “the documents we have for the moment will be the basis of our claim against Ukraine,” according to a transcript of his comments posted on Gazprom’s website.
The matter is likely to be decided in international arbitration, Alexander Burgansky, an oil and gas analyst at Otkritie Capital, said in a note today.
Under the contract, Ukraine must import or pay for 80 percent of the annual contracted volume of 52 billion cubic meters a year, according to Gazprom. The company uses the take- or-pay clause in contracts with most of its clients.
Ukraine imported 32.9 billion cubic meters of gas last year, about 26 percent less than in 2011, according to information on the country’s Energy and Coal Ministry’s website. Naftogaz bought 24.9 billion cubic meters, Interfax reported, without citing anyone.
The average price in the fourth quarter was about $430 per 1,000 cubic meters, according to Naftogaz. That compared with about $400 per 1,000 cubic meters that Gazprom charged its EU customers in December.
Ukraine and Shell plan to develop the Yuzivske project, in the Donetsk region, where production may reach as much as 20 billion cubic meters a year. The area has a mix of conventional and shale deposits. Ukraine estimates the project will cost at least $10 billion.
“Very exciting in Ukraine,” Shell Chief Executive Officer Peter Voser said in an interview with Bloomberg Television on Jan. 25. “ We are now starting to actually go into the exploration phase, we are hopeful.”
Eduard Stavytskyi, Ukraine’s energy minister, said last week that the country expects an agreement with Gazprom in the first quarter of the year.
Ukraine has an agreement with RWE AG (RWE) on gas purchases. Following Ukraine’s deal with Shell, Chevron Corp. (CVX) will hold public hearings on shale gas production in Ukraine from Jan. 30 to Feb. 4, Interfax reported Jan. 25, citing Vasily Plavyuk, first deputy head of the regional administration.
Ukraine is seeking international aid as its economy suffers from weaker demand for exports such as steel. An International Monetary Fund mission is due to arrive this week for talks on the third bailout since 2008 after foreign reserves fell to the lowest level in almost three years.
Ukraine is expected to demand 33 billion cubic meters of gas this year, a Gazprom official said on a conference call earlier this month.
The gas producer has made concessions to its European clients, which means a compromise may also be found with Ukraine, Greenwich Capital’s Snykov said.
The Moscow-based gas producer provided price discounts to clients including Eni SpA (ENI), EON SE and Polskie Gornictwo Naftowe i Gazownictwo SA (PGN) last year after the partners sought a review of contract terms. Gazprom remains in arbitration with RWE’s Czech unit over prices and take-or-pay volumes.
“Interruption of Russian gas flow to Ukraine is unlikely, though Europeans should pray for a warm February,” Mikhail Korchemkin, head of Malvern, Pennsylvania-based East European Gas Analysis, said by e-mail. “Just in case.”
The Financial Times reported the Gazprom invoice on Jan. 25.