Blog News Events Publications Directory Community Industry Voices Media

Russia cuts off gas supply: Ukraine minister

Russia has cut off its gas supplies to Ukraine, the country’s energy minister told news wires Monday, after the two countries failed to agree on a payment scheme in late-night talks.

Although initial reports suggested that oil supplies were proceeding as normal, the Ukrainian minister told Reuters that its supplies had been halted. Earlier a source at Russia’s state-backed gas giant Gazprom said that it had reduced gas supplies to Ukraine as soon as the deadline passed.

In an official statement Gazprom said it had now introduced a prepayment scheme for Ukrainian shipments, adding that it would continue to supply contracted volumes to its European consumers. It added that is had filed a lawsuit in the Stockholm Arbitration Court to try to recover $4.5 billion it says it is owed by Ukraine.

AdvertisingION Commodities

Gazprom executives are now expected to report to Russian President Vladimir Putin later on Monday, according to Russian Deputy Prime Minister Arkady Dvorkovich. Dvorkovich told CNBC Monday that he didn’t expect any further sanctions to be imposed on Russia by the U.S. and Europe and said Russia was “open for investment and trade” with all its partners.

Ukraine’s national oil and gas company Naftogaz responded shortly afterwards, with reports stating that it had filed its own lawsuit in Stockholm to try to recover $6 billion of what it called “overpayments” to Russia’s Gazprom. It also said that it could last without Russian supplies until December.

Russia has previously said that Kiev owes $1.95 billion for gas that has already been delivered. Under former President Viktor Yanukovych, Ukraine had been paying a reduced price of $268.5 per 1,000 cubic meters for the amount of gas that it was buying from Russia. However, after fierce street battles, a change of government in Kiev and the annexation of Crimea by Russia, Moscow ramped up that price. From April 1, the price changed to $485 per 1,000 cubic meters.

After several rounds of talks, with a representative from the European Union trying to help both sides reach a compromise, no clear solution was found. Moscow had agreed to offer a $100 discount which it said was the average price paid in Europe for Russian gas. However, Kiev was only willing to pay a proposed $326 per $1,000 cubic meter.
Ukrainian officials have told CNBC that it is impossible to talk about the gas debts it has in isolation and believe assets in Crimea – which is now controlled by Russia – need to be accounted for.

Thomas Reed, the CFO of oil and gas producer Ruspetro, believes the crisis in Ukraine has cast a shadow over the Russian oil industry with investment in the country being hit.

“From our perspective as investors we’re deciding to allocate capital into west Siberia, all we need is the stable environment to do that and as soon as the political shadow is removed the better,” he told CNBC Monday.