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Russia, Ukraine Sign Deal to Settle Gas Dispute

BY Admin  January 19, 2009 at 12:10 PM EST

Russian gas worker; AP photo

Ukraine will buy Russian gas at a 20 percent discount compared to other European market prices, said Russian President Vladimir Putin, who was present at the signing along with his Ukrainian counterpart Yulia Tymoshenko, Reuters reported.

The deal was signed by Russia’s state-run natural gas monopoly Gazprom and Ukraine’s gas company Naftogaz.

The average European price is about $450 per 1,000 cubic meters of gas. Even at 20 percent less, Ukraine’s price for gas in 2009 would still be about double the deeply discounted price it used to pay.

However, gas prices are expected to fall this year due to a drop in oil prices, so Ukraine could end up paying as little as $150 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow’s Alfa Bank, reported the Associated Press.

Ukrainian Parliament Speaker Volodymyr Lytvyn said Monday, citing Naftogaz and Russian officials, that the average price Ukraine will pay this year will be around $240 to $250, according to the AP.

Europe gets about 20 percent of its gas from Russia through Ukrainian pipelines, and some countries, such as Bulgaria and Slovakia, rely almost entirely on Russian gas. The shutoff sent the nations scrambling to look for other possible sources of gas.

Gazprom suspended gas supplies to Ukraine on Jan. 7, after its 2008 contract had expired and the two nations’ gas companies couldn’t come to an agreement on new terms. Also, Moscow alleged that Kiev was siphoning off gas for its own use, rather than shipping it to Europe. But Ukraine disputed this, saying it was not getting enough “technical gas” from Russia for its sprawling network of pipelines to transport the gas to Europe.

Ukraine also owes Gazprom $614 million in unpaid gas bills.

Putin said that in 2010, Ukraine will have to pay full price for Russian gas, and Russia will pay market prices for using Ukraine’s pipelines to transport the gas, the AP reported.

Putin also told reporters that Ukraine and Russia agreed not to use intermediaries in the gas trade. Previous deals had used Swiss-based intermediary Rosukrenergo, a 50-50 joint venture between Gazprom and two Ukrainian businessmen, according to Reuters.

It reportedly will take about 36 hours for the first Russian gas to cross Ukraine and enter Europe.