Ukraine gas talks fail again. Why that's a big deal.
Negotiations over a natural gas deal between Ukraine and Russia have faltered since the spring, but the standoff has taken on a new urgency as winter approaches.
Following the overthrow of Ukrainian President Viktor Yanukovich in February, Russia altered the terms by which it sells natural gas to Ukraine. Along with Yanukovich, favorable pricing went away. In April, Russia nearlydoubled the sale priceof natural gas to Ukraine, from $268.50 per thousand cubic meters to $485.50.
This was a price that the Ukrainian government said it could not meet. Even worse, Russian gas company Gazprom demanded upfront payment for gas supplies, an issue that kept the two countries at odds for months. Gazpromcut off gas supplies to Ukraine in June, saying Ukraine had failed to pay its debt. (Related: Putin Threatens Gas Reduction To Europe)
A long-term solution has eluded Moscow and Kiev since, and talks have dragged on for months. Its not just Ukraines problem, though: around40 percentof Europes gas imports from Russia travel across Ukrainian territory. So to a large extent, the standoff over pricing is a three-way dispute between Russia, Ukraine and the European Union. The supply cut-off in June underscored the threat to the rest of Europe.
It will be difficult to postpone a resolution any further. Russian Energy Minister Alexander Novak hasdemanded full payment in advancefor gas deliveries in November and December. In addition, he says Gazprom must receive further debt payments from the Ukrainian government as a pre-condition to a deal.
Expectations were high that an agreement was imminent after some of the major stumbling blocks had been ironed out. Ukraine and Russia agreed on aninterim priceof $385 per thousand cubic meters through March 2015. Although the price is substantially lower than the price Russia originally demanded, it is still a victory for Moscow as it is above theaverage that other Gazprom customers pay-- around $350 per thousand cubic meters.
Nevertheless, no deal was cemented during talks inBrussels on Oct. 21because Ukraine is still short on funds. There is a cash gap for November and December and this cash gap requires financial resources,Novak said, suggesting that the European Union should provide Ukraine with the money.
Ukrainian President Petro Poroshenko has asked Brussels for 2 billion euros, but the EU Commission has thus far balked at the price tag.
But European officials are desperate to bridge the gap to avoid a confrontation over natural gas supplies, with colder weather beginning to set in. Gazprom has gone to great lengths to reassure its EU customers that gas supplies will not be affected by its decision to cut off Ukraine. But Russian President Vladimir Putin hasthreatened to reduce gas flowsif Ukraine diverts supplies for its own use. (Related: Caspian Sea Could Be Key To Russian Control Of Eurasian Energy Markets)
Even still, aCitigroup reportpublished in September found that the EU has stockpiled enough gas supplies to withstand a supply cut off from Russia, as long as the winter season was not abnormally cold.
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Ukraine gas talks fail again. Why that's a big deal.