Moscow Promises Tough Gas Talks

APTymoshenko speaking with Yushchenko at the Kiev airport after he returned from a working visit to Poland on Friday.
A day after apparently settling a gas price dispute with Ukraine, Moscow set the scene on Friday for further tough talks with Kiev by saying adamantly that the era of low prices was over for good.

Gazprom and Ukraine's state energy company Naftogaz Ukrainy on Thursday struck a deal on prices for this year and said they would remove an intermediary in their trade. The agreement ended a tense standoff that could have endangered European supplies.

Ukraine buys Central Asian gas through Gazprom, whose suppliers in the region -- Turkmenistan, Kazakhstan and Uzbekistan -- said last week that they wanted "European prices" starting next year.

"The position of the Central Asian partners is final and is not subject to review," Gazprom chief executive Alexei Miller said Friday in a televised meeting with President Vladimir Putin.

Gazprom will "immediately" start talks with the customers who buy the gas, Miller said in comments broadcast by Rossia state television. These are primarily Ukraine, which gets most of the Central Asian gas, and Belarus.

Gazprom most recently warned consumers about the looming price hike on Tuesday, a day before it restarted talks with Naftogaz Ukrainy about current payments and future contracts. The sides said Thursday that they would continue negotiations about next year's prices.

The comments by Miller and Putin were likely meant to reinforce their message of higher prices to Ukraine, which must have rejected the new pricing conditions for next year, said Konstantin Simonov, director of the National Energy Security Foundation.

Ukrainian Prime Minister Yulia Tymoshenko and President Viktor Yushchenko said Friday after discussing Naftogaz's deal with Gazprom that they were satisfied with the outcome of the week's talks in Moscow.

Tymoshenko said she would continue to push for elimination of intermediary RosUkrEnergo from the gas trade.

"We continue all negotiations ... to switch over to direct agreements with Gazprom," Tymoshenko said in Kiev. "It is a big victory for the Ukrainian side that all gas will be delivered to Ukraine without new intermediaries."

A previous warning from Moscow came at the end of November, when Gazprom announced that Turkmenistan wanted "market" prices for its gas.

Miller said Friday that the current price in Europe was hovering above $370 per 1,000 cubic meters of gas and could reach as much as $400.

Gazprom and Belarus agreed in 2006 that the country would pay 80 percent of the average European price in 2009. There is no such agreement with Ukraine.

Deutsche Bank said in a note Friday that the price for Ukraine could exceed $250 next year, likely causing problems for the Ukrainian economy. Ukraine is a large gas consumer, planning to import 55 bcm of gas this year. Gazprom's projected exports to the European Union for this year amount to 157 bcm, Miller said Friday.

George Lilis, an analyst at MDM Bank, said Gazprom would charge Ukraine anything in the range of $275 to $320 under the assumption that the current European prices stay at their current level. That price would carry a discount for lower transportation costs, he said in e-mailed comments.