Schmidt Karl Ludwig Investment Services: Russia's Gazprom threatens to cut off gas to Ukraine, Europe
A look into why Russia's Gazprom has threatened to cut off gas to Ukraine and Europe, and the possible effects to the economy
Wein, Austria, February 28, 2015 (Newswire.com) - Russia's state-owned gas giant Gazprom warned in writing Tuesday it could cut off gas deliveries to Ukraine within two days, upping the stakes in the crisis there. Ukraine has failed to make a new pre-payment for gas in time threatening supplies to the rest of Europe. The Gazprom announcement came hours ahead of a Paris meeting of the foreign ministers of Russia, Ukraine, Germany and France. Ukraine's national gas company, Naftogaz, has already said the Russian company was not supplying gas Ukraine has paid for. Earlier this month, Russian Energy Minister Aleksandr Novak estimated Ukraine's debt to Russian energy giant Gazprom at $2.3 billion.
Lucas McIntyre of Schmidt Karl Ludwig Investment Services observes that on At 10:00 MSK on December 9th 2014, Gazprom commenced delivery of gas to Naftogaz Ukrainy. Gazprom would deliver 43.5 million cubic meters of gas per day for the remainder of December. On December 5th, Gazprom confirmed receipt of a pre-payment of $378.22m from Naftogaz for the supply of 1 billion cubic meters in the month of December. At the end of 2014, Kiev's massive gas debt that stood above $5 billion, forcing Moscow to suspend gas deliveries to Ukraine for nearly six months. On December 9, Russia resumed its supplies under the so-called winter package deal, which expires on April 1, 2015.
Gazprom last week started providing direct gas deliveries to parts of Ukraine under the control of pro-Russia separatists fighting government forces, supplanting Naftogaz deliveries disrupted by pipeline damage, Medvedev ordered the energy minister and the head of Gazprom to prepare proposals on fuel deliveries to the self-proclaimed Republics of Donetsk and Lugansk (DPR and LPR) after Kiev had cut off the delivery pipeline into the southeastern regions. Ukraine's Naftogaz said it had halted gas supplies to eastern regions due to broken pipelines. "Ukraine has failed to make a new pre-payment for gas in time," Gazprom CEO Alexei Miller said in a statement on Tuesday.
Lucas McIntyre of Schmidt Karl Ludwig Investment Services also noted that " in two days it will lead to a complete termination of the Russian gas supplies to Ukraine, which creates serious risks for the gas transit to Europe Ukraine's consumers have requested a larger supply; the volume has increased by 2.5 times. This means that the prepaid volumes left are enough for no more than two to three days.” He added that it takes two days for Gazprom to receive money transferred from Naftogaz.
The Ukrainian company issued a statement accusing Gazprom of failing to honor pre-paid gas deliveries on Sunday. "Naftogaz ordered 114 million cubic meters in line with the 'Winter Package' supply conditions, but Gazprom delivered only 47 million cubic meters," it said. Naftogaz complained this was a "violation" of a supply deal signed in October in Brussels between the Russian and Ukrainian energy ministers and the European Commission.
Schmidt Karl Ludwig Investment Services advices that Gas supplies to Ukraine are vital not only to provide heating and energy during the freezing winter, but also because of Ukraine's key role as a transit point for Russian gas to Europe. Russia supplies around a third of Europe's gas, around half of it flowing via Ukraine. Many eastern EU states are totally dependent on Russian gas, while Greece, Germany and Italy depend on it significantly.
Prime Minister Arseny Yatsenyuk said earlier that Ukraine was looking forward to increasing its domestic oil and gas exploration and more supplies from Europe allowing it to completely cut imports of Russian gas.
Prime Minister Arseny Yatsenyuk said earlier that Ukraine was looking forward to increasing its domestic oil and gas exploration and more supplies from Europe allowing it to completely cut imports of Russian gas.