Russia and Ukraine Reach Deal on Gas Deliveries, Ending Weeks-Long Dispute

Strategic Insights -

Russia and Ukraine resolved their dispute over gas prices with a five-year deal on gas deliveries, ending a bitter pricing dispute that had left many European countries scrambling for alternative energy sources. The agreement was reached after Ukraine's gas company, Naftogaz Ukrainy, had been resisting Gazprom's demands for a higher price, which would have increased the cost of gas for Ukraine's citizens. Under the deal, Gazprom will sell gas to the Rosukrenergo trading company for $230 per 1,000 cubic meters, which will then be mixed with gas from Central Asian countries and sold to Ukraine for $95 per 1,000 cubic meters.

Key Takeaways:

  • Russia and Ukraine have agreed on a five-year contract for gas deliveries, ending a weeks-long dispute over pricing.
  • The deal establishes a complex price scheme, where Gazprom sells gas to Rosukrenergo for $230 per 1,000 cubic meters, which will then be mixed with gas from Central Asian countries and sold to Ukraine for $95 per 1,000 cubic meters.
  • The transit price for gas through Ukraine to Europe has been increased by nearly 50% to $1.60 per 1,000 cubic meters for every 100 km transported.
  • Gazprom provides approximately 50% of the gas consumed in the European Union (EU), with 80% of this amount sent through pipelines crossing Ukraine.
  • The agreement provides "additional security guarantees to gas exports to Europe" and serves as a "sound foundation for further cooperation between Russia and Ukraine in the gas sector based on market principles," according to Gazprom's Chairman, Alexei Miller.
  • The dispute had left many European countries, including Slovenia and Germany, feeling the pinch of gas supply shortfalls in freezing weather.
  • Russia had accused Ukraine of stealing gas intended for other European countries, a charge denied by Ukraine's Naftogaz Ukrainy.

Statistics:

  • $230: The price per 1,000 cubic meters at which Gazprom will sell gas to Rosukrenergo.
  • $95: The price per 1,000 cubic meters at which the gas mixture will be sold to Ukraine.
  • 50%: The percentage of gas consumed in the European Union (EU) that is provided by Gazprom.
  • 80%: The percentage of this 50% that is sent through pipelines crossing Ukraine.
  • 1.60 USD: The new transit price for gas through Ukraine to Europe per 1,000 cubic meters for every 100 km transported (an increase of 50% from 1.09 USD).
  • $50: The price per 1,000 cubic meters at which Ukraine had been buying gas from Russia over the past year.

Sources:

  • Xinhua News Agency, "Russia, Ukraine Reach Deal on Gas Deliveries" (January 4, 2006)