New gas dispute breaks out between Ukraine and Russian Federation

by Abel Hampton March 4, 2018, 3:54
New gas dispute breaks out between Ukraine and Russian Federation

On Wednesday, Naftogaz announced the final ruling of the Stockholm arbitration court in the case against Gazprom over the latter's failure to supply agreed volumes of gas for transit.

The gas dispute between the Russian and Ukrainian energy companies is one of the consequences of the troubled relations between the two countries since the 2014 Euromaidan protests in Ukraine, the subsequent regime change in Kyiv, the annexation of the Crimean peninsula by Russia, and the conflict that erupted in eastern Ukraine between the central administration and Russian-backed separatists.

Russia's Energy Ministry said on Saturday that gas giant Gazprom's intention to terminate contracts with Ukraine poses no immediate threat to natural gas supplies to Europe through Ukraine.

Just hours after an arbitration court had ruled in favor of Naftogaz in a long-running payment dispute between the Ukrainian state company and Gazprom, a fresh gas dispute flared up on Thursday after Naftogaz said that Gazprom had not stood by its commitment to resume gas supplies, forcing Ukraine to reduce gas usage amid Arctic temperatures as the "Beast from the East" freezing weather front sweeps across Europe. "This will improve security of supply and give Ukrainians affordable energy", Kobolyev added. The decision seriously violates the balance of interests of the parties under these contracts. Since November 2015, Kiev has not bought Russian gas, replacing it with reverse gas from Europe.

Due to an emergency gas shortage, Ukraine's power plants must now use oil instead of gas. What is unclear is how the transit deal will be affected by the row: Gazprom delivers some 80% of the approximately 110bcm of gas it sends to its Western European customers via the ironically named Druzhba, or "Friendship", pipeline that runs across Ukraine. At the same time, however, the arbitrators retained the "take-or-pay" condition for 4 billion cubic meters of gas per year and obliged the Ukrainian company to pay $ 2-billion debt for gas and set a penalty for non-payment, which by now is more than $40 million. Naftogaz also referred to the negotiations earlier offered to Gazprom on the need to revise the transit tariff from 2010 in accordance with the European rules.

Last year, Gazprom had its $56 billion take-or-pay claims rejected by the Tribunal and Naftogaz had its minimum annual offtake obligation reduced from 41.6 billion cubic meters (Bcm) to 4 Bcm.

Gazprom, obviously, will challenge the arbitration award.

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