Kyiv-Moscow gas talks

On May 18 Russian President Dmitry Medvedev declared that there is no biased attitude toward Ukraine [in terms of gas supplies], but simply a price to be paid. This gives one food for thought. Does this mean that the Russian political leadership is prepared to meet Ukraine halfway? This assumption is rejected as soon as one analyzes the rest of the Russian president’s statement: “This, however, doesn’t mean that we won’t be making any plans, including various interesting economic projects, which will help attenuate the situation… Should Ukraine adopt the European development vector, it would find it difficult to resolve problems in terms of a single economic space and Customs Union between Russia, Kazakhstan, and Belarus.” A statement in which all the I’s are dotted and T’s crossed.

Ukraine is holding gas talks with Russia to revise the unfair payment formula. It would be erroneous to expect Ukraine to be knocked out by Russia’s gas assault, just as its asymmetric response wouldn’t seem popular in the second half of 2011, with Ukraine cutting gas supplies from Russia.

Prime Minister Mykola Azarov said as much, and his statement was aimed not so much for the Ukrainian audience as for the Russian contracting party: “We will be buying considerably less gas than in the first half of this year because the price will have increased. We have made most purchases during the first quarter, so in the second quarter of the year we won’t have to buy gas.” Indeed, one has to be nuts to buy gas at what Kostiantyn Borodin, deputy head of the Energy and Coal Industry Ministry’s oil, gas, and processing department, estimates the price will be — 350 dollars in the third quarter and in excess of 400 dollars per 1,000 m3 in the final quarter.

“I have no doubt that we will agree on a payment formula acceptable to Ukraine,” says Mykola Azarov, adding that Ukraine ranks with the largest buyers of Russian gas, just as it remains the largest transporter of Russian gas to Europe.

Russia promptly responded to this one when the State Duma’s Deputy Speaker Valerii Yazev, president of the Russian Gas Society, said that there are no reasons for revising the cost of gas supplies to Ukraine. Addressing a press conference in Moscow, he declared that there was a possibility of reducing gas transit across Ukraine by using the Nord Stream: “After all, supplying gas from the Northern fields can be made quicker by using the Nord Stream,” said Yazev, immediately adding that Russia had no intention of rejecting the usage of Ukraine’s gas transportation system.

Yazev’s statement is easily understandable, but what about Dmitry Medvedev? The Russian head of state appears to be pressured by Ukraine as well as other European countries’ negative attitude to Gazprom’s excessive prices.

The first round of gas talks in 2010 ended in making arrangements with E.ON AG, Wien Energie, WINGAS GmbH & Co., GDF SUEZ, ENI, EGL, Sinergie Italiane, ERG, GWH Gashandel GmbH, Econgas and GasTerra. Gazprom’s current progress report, however, reads that the LLC Gazprom Export is negotiating gas supply price changes with RWE Transgas, GDF SUEZ, SPP, Premiumgas, Promgas, E.ON AG, RUHRGAS, and ENI. Whereas last year Russia’s Gazprom gas exports to Europe were priced at 306 dollars per 1,000 m3, in 2011 it may well be up by 15 percent — to 352 dollars. Long-term contracts will raise the price to 500 dollars in December.

Valentyn Zemliansky, an independent energy expert, offers his view: “Moscow is facing another election campaign and is trying to play the Ukrainian card. Vladimir Putin’s visit to Kyiv in April was an obvious fiasco and part of the scenario. Now Kyiv has to deal with two potential Russian presidential candidates, each trying to outsmart the other by dragging Ukraine into the CIS Customs Union, or by consuming Naftohaz Ukrainy and reorganizing it as a Russia-Ukraine joint venture. Medvedev is working on this project, showing his preparedness to make concessions, expecting Ukraine to reciprocate. The big question is who will be there to make the deal with Kyiv. The Ukrainian Cabinet appears resolved to hold the gas talks with the Russian head of state, rather than the prime minister, and score.”