Ukraine Gas Talks Break Down; Don't Worry Until September

Ukraine gets  half of the natural gas it uses from Russia. However, it's not an evenly distributed half. Ukraine needs far more gas in winter, and far less in Summer. Ukraine has enough gas now to last until September.

Politics being politics, resolution of the dispute could be another two months away before anyone panics. Thus, it should be no surprise that Russian Gas Payment Talks Fail.

Ukraine risks the cutoff of natural-gas supplies from Russia after overnight talks to resolve a pricing dispute between the two countries ended without a deal less than eight hours before a payment deadline.

Ukraine must pay $1.95 billion to partially settle its debt to the Russian-owned natural gas exporter OAO Gazprom for past deliveries by 10 a.m. Moscow time today, said Sergei Kupriyanov, a company spokesman, by phone. He said the deadline won’t be waived.

“The Russian side has stated that if there will be no upfront payment, it will start limiting gas,” said Ukraine Energy Minister Yuri Prodan.

Russian negotiators rejected a compromise proposal by the European Union, according to EU Energy Commissioner Guenther Oettinger, who has been involved in the trilateral talks since they started in May.

The EU, dependent on Russian gas piped through Ukraine for about 15 percent of its supplies, is trying to broker a deal to maintain shipments amid the fuel payments conflict. In Ukraine, government forces and rebels claiming allegiance to Russia continue to clash in the east of the country.

“For the moment our Russian partners didn’t accept my proposal,” Oettinger said. “We have no common understanding.”

Ukraine was ready to accept the EU proposal of a price range between $300 and $385 per 1,000 cubic meters, still above the $286.5 that the country paid in the first quarter, Kobolyev said today. Gazprom’s final offer was $385, the company said last week.

Ukraine, which relies on Gazprom (GAZP) for about half its gas, is able to survive without Russian fuel until the middle of September as its current gas consumption almost matches domestic output due to low seasonal demand and the stalling of production at its chemical plants in the east, according to a Concorde Capital, a Kiev, Ukraine-based investment company.

The last paragraph above explains all you need to know. The setup in Ukraine is quite like debt ceiling negotiations in the US, typically solved at the last moment with huffing and puffing and overblown reporting of consequences if a deal is not reached.

Given that Russia needs the income and Ukraine and Europe needs the gas, the odds of a deal "in due time" are at least 95%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com