Ukraine Halts Russian Gas Purchases

Ukraine Halts Russian Gas Purchases After Price Talks Fail

Zero Hedge,

30 June 2015

It has been a bad day for deals and deadlines all around: first Greece is about to enter July without a bailout program and in default to the IMF with the ECB about to yank its ELA support or at least cut ELA haircuts; also the US failed to reach a nuclear deal with Iran in a can-kicking negotiation that has become so farcical there is no point in even covering it; and now moments ago a third June 30 "deal" failed to reach an acceptable conclusion when Russia and Ukraine were unable to reach an agreement on gas prices at talks in Vienna on Tuesday. As a result, Ukraine is suspending its purchase of Russian gas.

According to RT, Russian Energy Minister Aleksandr Novak and Ukraine’s Energy and Coal Minister Vladimir Demchishin both admitted to reporters that the negotiations had born no fruit. Demchishin added that there would be a new round of talks in September.

Meanwhile, Ukraine’s energy company, Naftogaz, will stop buying gas from Russia as of Wednesday, July 1.

“As of June 30, 2015, the agreement between Naftogaz and Gazprom runs out, and conditions for continued supply of Russian gas to Ukraine have not been agreed upon; Naftogaz will no longer be purchasing gas from the Russian company,” a press release by Naftogaz said.

The Russian minister seemed unhappy and said it was politically motivated and there were no grounds for it.

So what will prevent Ukraine from simply siphoning off Russian gas transiting its territory for Europe? Nothing, except its word: 

Naftogaz gave assurances that “the transit of Russian gas through Ukrainian territory to Gazprom’s European clients will continue in full, according to contracts agreed.”

Russia will not increase the discount it has offered to Ukraine on gas purchases, Novak told the media. “The price of $247 [per cubic meter of gas] is completely uncompetitive, that is why we are very surprised that Ukraine wants a much lower price – it is out of line with the current market environment.” He stressed that the price “is not subject to correction.”

Ironically, even as Kiev will begin counting down the days until the winter, Russia will continue direct supplies of gas to Ukraine’s southeast, the Donbas separatist region which has been all but forgotten by the Ukraine capital due to the ongoing civil war on location. It has been doing so since February, when Kiev claimed that it could no longer supply gas to the conflict-torn regions due to damaged pipelines.

While Gazprom insists that Kiev is still responsible for paying for the gas that goes to Donbas, it probably should not hold its breath.

Incidentally, just like the Eurogroup launched shock treatment on Greece with capital controls first and shortly deposit haircuts, all in order to force the Greek government to resign by peaceful means or otherwise, the Kiev government, just as broke and about to default on its own bonds, may have just lit the fuse under its own cabinet, because while nobody needs heating in the summer when it is hot, in 5 months it will get very cold and as Greece has shown a desperate people are unpredictable.

Should the gas cutoff continue well into the cold winter, it just may be the catalyst that forces the revulsion against a regime that has so far done the bidding of the US State Department, if not so much its own people.