Oil and Gas

Gazprom Cuts Gas Supplies to Ukraine by 25%


Russia's gas monopoly Gazprom reduced supplies to Ukraine by a quarter on Monday, just hours after its chairman and Kremlin candidate Dmitry Medvedev won Russia's presidential election.

Gazprom pledged its exports to Europe would not be affected. A quarter of Europe's gas supplies pass through Ukraine.

Gazprom has often threatened to cut gas supplies during previous pricing disputes with former Soviet neighbours Ukraine and Belarus, but the threat is materialising only for a second time after the landmark cut in the New Year of 2006.

That brief disruption cut supplies to Gazprom's west European customers, making them wary of any hint of a new row.

The new reduction comes as Europe's heating season is nearing its end, unlike in 2006 when it came in the middle of winter.

"Gazprom is a reliable gas supplier, but we cannot and won't supply gas without payment," said Gazprom spokesman Sergei Kupriyanov. He said deliveries had been reduced by 40 million cubic metres a day.

Ukraine's state energy firm, Naftogaz, confirmed that supplies had been reduced, but gave a different figure of 30 mcm a day, revising it later to 38 mcm.

"These are insignificant volumes and they won't have an impact on Ukrainian consumers," said a Naftogaz official.

By comparison, Gazprom supplies Europe with around 410 mcm a day and Ukraine gets 135 mcm a day.

The shares of Gazprom closed 3.2 percent lower.

Difficult Relations

Medvedev, 42, who is Gazprom's chairman and First Deputy Prime Minister, won over 70 percent of the vote in the presidential election on Sunday and will be the youngest Russian leader since Tsar Nicholas II when he is sworn in on May 7.

He has asked the current president Vladimir Putin to be his prime minister. Putin, 55, was prevented by term limits from running for re-election.

Putin has had difficult relations with Ukraine's pro-Western leadership, who is mulling the idea of joining the NATO alliance. Valery Nesterov from Troika Dialog brokerage said he saw little reason why Medvedev should have different relations with Kiev.

"Clearly, the Russia-Ukraine gas relationship, which was already on the rocks, began to deteriorate sharply last month."

"The unresolved problems are piling up and include Ukrainian debts to Gazprom, gas prices, the marketing scheme for gas...,re-exports of Russian gas and more importantly the broader geopolitical disagreements between the two countries," he said.

Gazprom says it has failed to reach a compromise with Ukraine over a $600 million debt for previous supplies and is also concerned by the lack of any deal for deliveries in 2008.

Ukrainian officials say the debt had been paid in full. Ukrainian President Viktor Yushchenko and Putin agreed last month to settle the gas debt and eliminate intermediaries in gas trade.

But a subsequent visit to Moscow by Ukrainian Prime Minister Yulia Tymoshenko, who is viewed less favourably by the Kremlin, brought a new round of tensions with both Russia and Ukraine producing conflicting statements about the gas trade.

Kupriyanov said Gazprom was ready to continue talks, but did not say whether Ukrainian officials would visit Moscow any time soon or if Gazprom would visit Kiev.

Nesterov said he doubted any new deal would last long. "Any gas agreements that the countries make periodically is no more than a short-term fix that is bound to fail until the development of a broader relationship encompassing gas policy as well as wider issues," the analyst said.