Russia and Ukraine Remain at Odds Over Gas Price

By Peter Fedynsky

Moscow
02 January 2009

European countries are not reporting any shortages of natural gas after
Russia reduced volumes shipped to Ukraine in a contract dispute between
Moscow and Kyiv. Talks
between the two sides remain suspended in a disagreement over the price
of gas for 2009.

Alexei Miller, the chairman of Russia's state
energy company, Gazprom, said late Thursday it was withdrawing what he
claims was a generous offer made when talks between the two sides broke
off talks on New Years Eve.

Miller says that because Ukraine has
rejected favorable terms for delivery of gas in 2009 at a price of $250
per 1,000 cubic meters, Gazprom will supply that country at the
European market price of $418 as of January 1.

A Gazprom
spokesman also accuses Ukraine of illegal gas siphoning, and says the
company will compensate Western European consumers with increased
volumes via alternate pipelines in Belarus. Gazprom claims Ukraine
still owes Russia $614, which includes a penalty for late
payment on November and December supplies. Ukraine says it has paid in
full.

Ukrainian President Viktor Yushchenko makes the case for
the price his country is willing to pay in a statement published only
in Ukrainian on his presidential Web site.  Mr. Yushchenko says that
until four years ago, the price of gas and its transit were covered by
a single contract. Mr. Yushchenko notes there should be a correlation
between the two; if the price of gas goes up, so should the cost of
transporting it.  He says Ukraine's price should be similar to that of
Germany - $280 - minus the additional cost that Germans pay for
pipeline fees across Ukraine, Slovakia and the Czech Republic. This
would mean a Ukrainian price of $225. Ukraine says it has paid in full
and needs to divert a certain amount of gas to maintain pipeline
pressure.

Russia, however, is now insisting on $418, plus last
year's price of $1.70 for every 100 kilometers of
Ukraine's pipeline to Western Europe.  

The spokesman for
Germany's E.ON Ruhrgas energy company, Helmut Roloff, told VOA that the
$280 figure mentioned by President Yushchenko is a reasonable estimate
of what Germans pay for Russian gas.  

Roloff adds that the
Ruhrgas contract pegs its price for natural gas to the price of oil,
which has plummeted from a high of $147 per barrel to about $40. He
says the company has not experienced any delivery reductions since
Russia held back Ukrainian supplies on New Years Day.  But the
spokesman notes that the Russian-Ukrainian dispute has become a yearly
event that Europe will avoid upon completion of the Nordstream pipeline
between Russia and Germany. It is expected to begin deliveries in 2011.

"The
current situation shows the great importance of Nordstream for the
energy industry," said Roloff. "This pipeline through the Baltic [Sea]
can ensure the supply of large gas volumes to the European Union on a
long term basis, so it's an important project and we look at it very
closely."

Currently about 20 percent of Europe's natural gas
supply comes from Russia via pipelines through Ukraine. European
consumers also purchase gas from The Netherlands and Norway, and
Germany has small deposits of its own.

President Yushchenko's
statement says both sides are close to a compromise and talks with
Moscow should resume in a day or two and be completed by January 7.  

Meanwhile,
an official Ukrainian delegation is visiting European Union capitals to
reassure member states that their gas supplies will not be disrupted.
And Deputy Russian Foreign Minister, Alexander Grushko, says Gazprom
representatives are prepared to visit Brussels and all EU countries to
explain their company's position.