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. Last Updated: 07/27/2016

Ukraine Backpedals in Gas Dispute

bloombergKiev said it had found alternative gas supplies as it backed off from threats to tap Russian exports to meet demand.
Ukraine's natural gas monopoly on Friday backed down from threats to divert Russian gas exports to Europe for its own needs after securing an alternate supplier.

Naftogaz Ukrainy has signed contracts to buy about 6 billion cubic meters of gas from another source, said Serhiy Lukyanchuk, a company spokesman, speaking by telephone from Kiev.

Though Naftogaz refused to reveal the source or the cost of the deal, Bloomberg on Friday reported that the extra gas shipments would come from Turkmenistan, citing a spokesman for the Ukrainian Energy Ministry. Ukraine had already planned to buy 36 bcm from Turkmenistan this year.

The extra supplies mean Ukraine is likely to have enough gas to meet its own needs this year. Last month, Naftogaz warned that supplies would have been in doubt if Gazprom made good on its threat to cut supplies.

Naftogaz's decision to buy more gas from a third party appeared to represent a retreat by Ukraine, at least temporarily.

"This isn't good for Naftogaz," said Ildar Gazizullin, an economist at the International Center for Policy Studies in Kiev. "It would have been better if they had managed to reach an agreement with Russia."

Gazprom in June accused Naftogaz of losing 7.8 bcm of gas and announced that it would deduct that amount from the barter payments it makes for the right to use Ukrainian pipelines for deliveries to Europe.

Naftogaz chairman Alexei Ivchenko retaliated by saying that Ukraine would help itself to Russian exports destined for Europe.

Speaking to reporters during the Group of Eight summit in Gleneagles, Scotland, on Friday, President Vladimir Putin said that Moscow was ready to work with Kiev in the sphere of gas transportation if Ukraine didn't "steal" Russian gas.

Naftogaz denies stealing the 7.8 bcm; it claims that the gas is safely tucked away in underground storage containers in western Ukraine but that it is not accessible for technical reasons.

Moscow and Kiev have quarreled bitterly over gas for years. The two neighbors are locked in a symbiotic relationship, in which Ukraine is highly dependent on gas imports while Russia needs Ukrainian pipelines for its gas exports to Europe.

Gazprom supplies one-quarter of Europe's gas supplies, and about four-fifths of those deliveries pass through Ukraine.

Naftogaz's Lukyanchuk said that the spat was not likely to result in a cut in supplies to Europe.

"Disrupting those shipments is in nobody's interest, and we hope that doesn't happen. That won't happen," he said.

Market watchers agreed that the most recent dispute would probably not affect long-term energy relations or lead to a full-scale price war.

"This is just an accident between the two countries which will be overcome," said Valery Nesterov, an analyst at Troika Dialog.

Yet Alexei Kormshikov, an oil and gas analyst at UralSib, did not lend much credence to Kiev's explanations for the missing gas.

"Naftogaz Ukrainy is pulling Gazprom's leg," he said.

Alexander Duncan contributed to this report.