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Gas industry

Russia-Ukraine Gas Dispute Escalates Amid Counterclaims and Supply Disruptions

Strategic Insights

— 2 min read

A high-stakes dispute over natural-gas prices between Russia and Ukraine has descended into counterclaims and legal threats, with six European countries downstream reporting slight supply disruptions. Russia's OAO Gazprom halted deliveries to Ukraine on January 1 after talks to negotiate a new supply contract broke down, citing a price dispute. The European Union gets 80% of its Russian gas imports via Ukraine, and both sides are defending their reputations as reliable energy suppliers. The dispute has evoked memories of 2006, when a similar dispute led to more serious supply disruptions in Europe.

Key Takeaways:

  • The dispute between Russia and Ukraine centers on a price disagreement, with Gazprom demanding $450 per thousand cubic meters, while Ukraine has proposed paying $235.
  • The two sides have engaged in a war of words, with Gazprom accusing Ukraine of delaying payment and Ukraine countering that it owes no late fees.
  • The dispute has led to slight supply disruptions in six European countries downstream, including Poland, Hungary, Romania, Turkey, Bulgaria, and the Czech Republic.
  • Ukraine has stockpiled gas, allowing it to weather a cutoff longer than in 2006, when the Russian cutoff led to instantaneous disruptions downstream in parts of the EU.
  • Gazprom has gotten approval from Russian President Dmitry Medvedev to bring a case against Ukraine's Naftogaz Ukrainy at the International Arbitration Court in Stockholm.
  • The European Union has refused to arbitrate, calling on Russia and Ukraine to settle their differences bilaterally, while lobbying efforts have centered on Prague and the Czech government.
  • Ukraine's President Viktor Yushchenko has written to eight world leaders, including US President George W. Bush, to put forth Kiev's side of the story.
  • In 2007, Ukraine paid $1.5 billion to an intermediary firm on behalf of Gazprom, but the Russian gas monopoly didn't expect the funds until January 11.
  • The annual negotiations with Ukraine have been particularly difficult, with Moscow pressing Ukraine to pay world prices since the pro-Western government came to power in 2004.
  • Less compliant neighbors, such as Georgia, now pay full price, while allies like Armenia pay lower rates.

Statistics:

  • The two sides disagree on the amount of gas that failed to reach European consumers, with Gazprom saying it was a shortage of about 50 million cubic meters.
  • This is equivalent to about a sixth of what Russia pumps to Europe every day.
  • Ukraine has stockpiled 30 billion cubic meters of gas, enough to supply 5% of the EU's gas needs for a year.
  • Gazprom's gas prices have risen toward world levels for all ex-Soviet neighbors in recent years, with Ukraine paying $179.50 per thousand cubic meters in 2008.
  • The EU gets 80% of its Russian gas imports via Ukraine, making it a critical transit country for Gazprom.

Sources:

  • Wall Street Journal
  • The Globe and Mail
  • Gazprom
  • Naftogaz Ukrainy
  • Ukrainian diplomats
  • European Commission
  • Czech government
  • US President George W. Bush
  • Russian President Dmitry Medvedev

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