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. Last Updated: 07/27/2016

Ukraine, Gazprom Settle Price Feud

Gazprom and Naftogaz Ukrainy said Thursday that they had removed at least one intermediary from their gas trade and settled a bitter payment dispute, reducing the risk of disruptions to European supplies.

Gazprom chief executive Alexei Miller and Oleh Dubina, head of the Ukrainian national energy company, signed the agreement a week after Gazprom ended a two-day partial cutoff of Ukraine over unpaid bills. The reduction prompted the Ukrainian company to threaten that it would take gas from shipments destined for Europe.

Ukrainian President Viktor Yushchenko said he was satisfied with the deal but questioned two of its provisions.

His prime minister, Yulia Tymoshenko -- who has loudly called for the gas middlemen to be removed from the trade -- had not commented on the result of the talks by early Thursday evening.

The European Union's foreign policy chief, Javier Solana, welcomed the news of the deal but emphasized the importance of it being implemented, Interfax reported.

According to Thursday's agreement, Naftogaz will buy Ukraine's gas at the country's Russian border, replacing current trader UkrGazEnergo, Gazprom and Naftogaz said in two separate statements. The gas comes from Central Asia by way of Gazprom pipelines.

Until now, controversial gas trader RosUkrEnergo, which is owned equally by Gazprom and two Ukrainian businessmen, has sold the gas at the Russian-Ukrainian border to UkrGazEnergo.

Gazprom and Naftogaz remained in talks Thursday about a replacement for RosUkrEnergo, Naftogaz spokesman Valentin Zemlyansky said.

Under the deal, Ukraine will continue to pay $179.50 per 1,000 cubic meters of Central Asian gas, which is Europe's lowest price, Gazprom and Naftogaz Ukrainy said in their almost identical statements. Naftogaz agreed to pay RosUkrEnergo and UkrGazEnergo that price for 5.2 bcm of the fuel supplied in January and February.

Gazprom will supply Ukraine with another 49.8 bcm through the rest of the year to bring Ukraine's total imports to the previously planned 55 bcm, Zemlyansky said.

Ending a bitter and confusing dispute, Ukraine conceded that it took delivery in January and February of some more expensive gas, priced at $315 per 1,000 cubic meters, that originated in Russia.

Gazprom, in its statement, said Ukraine could return the gas instead of paying off the debts -- an option that Naftogaz said it would take up.

Neither company specified on Thursday how much gas would be returned. Gazprom has previously said it supplied 1.9 bcm of Russian gas to Ukraine in January and February.

Casting a shadow over the deal, Yushchenko said the situation with the $315 price was unclear because it contradicted his Feb. 12 deal with President Vladimir Putin to keep the price at no more than $179.50, Interfax reported.

Thursday's deal stipulates that Gazprom's share of the lucrative sales market to Ukrainian industrial consumers will remain the same as before. A Gazprom subsidiary will be able to sell at least 7.5 bcm of gas in Ukraine per year, one-quarter of the 30 bcm that UkrGazEnergo has been selling, starting from April 1. UkrGazEnergo is owned equally by RosUkrEnergo and Naftogaz, giving Gazprom a 25 percent share.

The deal will boost Naftogaz's share of sales to Ukrainian industry from 50 percent to 75 percent.

Yushchenko said he had agreed with Putin that Gazprom would be able to sell at most 7.5 bcm of gas in Ukraine.

Gazprom will buy the gas from Naftogaz's Central Asian imports at a price regulated by Ukraine's government, Zemlyansky said, declining to name an exact figure.

Mikhail Korchemkin, executive director at Pennsylvania-based consultancy East European Gas Analysis, said Gazprom's access to the market appeared to be intact.

Spokesmen for RosUkrEnergo and UkrGazEnergo declined to comment Thursday.

Gazprom and Naftogaz, who started their talks in Moscow on Wednesday, will continue negotiating prices for next year, the companies said. On Tuesday, Gazprom hosted the heads of state energy companies in Turkmenistan, Uzbekistan and Kazakhstan, whose gas goes to Ukraine, and said the countries wanted "European prices" for their gas, starting next year.

Ukraine could enjoy a discount of up to 30 percent on average European prices because it imports proportionally more of its gas in summertime than any other European country, Korchemkin said. Gas transportation is cheaper in summer because of less consumption, he said. Ukraine has enviable underground storage facilities where it stocks the fuel for the winter season, he said.