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. Last Updated: 07/27/2016

Gas Flowing Again Toward Europe

ReutersGazprom chief executive Alexei Miller, right, and the head of Ukraine's gas company Naftogaz, Oleh Dubyna, watching officials exchange documents at the Gazprom headquarters in Moscow early Tuesday.
Gazprom resumed pumping natural gas into Ukraine on its way to Europe on Tuesday, two weeks after a contract dispute cut supplies to about 20 European countries.

Ukraine's state energy firm, Naftogaz, confirmed it was receiving Russian gas, but said it would take up to 36 hours for it to reach Europe, where some countries have been forced to ration supplies to businesses and households.

The order to start pumping gas again followed the signing of a 10-year gas contract between Moscow and Kiev and late-night talks between Ukrainian Prime Minister Yulia Tymoshenko and officials from Gazprom.

"Today at 10:05 a.m. Ukraine started taking Russian gas through Sudzha" compressor station in western Russia, Gazprom spokesman Sergei Kupriyanov said. "Now we are building up the volumes of deliveries on all routes to reach normal operation."

In Kiev, a spokesman for Naftogaz said Slovakia would be the first to receive the renewed supplies. "We confirm that gas is flowing in all directions. We will try to deliver it to Europe as soon as possible," the spokesman said.

The dispute had reflected political tension between the two countries, with Russia opposed to Ukraine's aspirations to join NATO.

Gazprom chief executive Alexei Miller said that under the new contract Ukraine would pay $360 per 1,000 cubic meters of gas in the first quarter of this year, a sharp rise on the $179.50 that Kiev was paying for Russian gas last year.

The new price is likely to come down later this year as gas tracks falling oil prices, but it will still be a huge burden for a Ukrainian economy struggling with debt and sharp falls in the hryvnia currency.

Tymoshenko said Monday that she expected an average annual price to be around $230 to $250 per 1,000 cubic meters.

Gazprom said in a statement that it planned to pump 348.8 million cubic meters of gas via Ukraine to Europe on Tuesday — slightly more than the daily volumes Russian was sending before the supply disruptions started.

Austrian oil and gas group OMV said Russian gas could reach its hub in Baumgarten, in the east of the country, on Wednesday.
A Turkish Energy Ministry source said the flow of Russian gas via Ukraine into its pipeline system would begin Wednesday and should be back to normal Thursday.

Russia will also resume pumping gas to Ukraine itself, cut off on New Year's Day and surviving on dwindling stockpiles.

The European Union, which tried with growing frustration over the past two weeks to broker a deal, said Monday that it would not consider the crisis over until its monitors verified that gas had reached the bloc.

"For the EU, the decisive moment will come when renewed supplies are registered at its borders," said Martin Riman, industry minister for the Czech Republic, which holds the EU's rotating presidency.

Oil prices fell to just over $33 a barrel on Tuesday, partly in response to the resumption of gas supplies through Ukraine. The gas disruptions had driven up demand for oil products, used as alternatives to gas in heating and power generation.

Even once flows to Europe resume, the effects are likely to linger. Russia's standing as an energy supplier is under renewed scrutiny and Europe is exasperated that its gas flows were blocked by squabbling between Moscow and Kiev.

Russia provides about a quarter of Europe's gas requirements and pumps 80 percent of this via Ukraine.

Russia cut flows to Ukraine itself on Jan. 1 after the two sides failed to agree a 2009 supply contract. Six days later, export flows to Europe through Ukraine also ceased after Russia accused Kiev of siphoning off gas intended for export.

Ukraine's leaders denied stealing gas, and countered that Moscow was trying to blackmail European customers by halting gas supplies.

The supply disruptions hit about 20 countries across Europe. France, Britain and Germany drew on large reserves and alternative supplies to escape any serious problems.

But countries in Eastern Europe, including several with close ties to Russia, bore the brunt.

Slovakia's government said the disruptions forced about 1,000 companies to shut down or cut operations, and it briefly considered restarting a Soviet-era nuclear reactor. In Bulgaria, many households were left without adequate heating.