When it comes prices, Alexey Miller is second to none. Last year, for example, he wanted to buy a tablet that wouldn’t cost more than $ 3.7 million. The head of Gazprom is certainly used to count dollars in millions, and it’s not hard to see why since it is head of a colossus of 153 billion dollars in revenue in 2012. So, when we talk about the price of gas for Ukraine, we have to be careful.
Gazprom demanded that Ukraine clears at least $ 1.95 billion of the total debt of $ 4.5 billion for supplies not paid by June 16. The deadline expired and Kiev didn’t pay a dollar. Neither an agreement on the price has been reached during negotiations with the mediation of EU, which offers $ 300 per thousand cubic meters against 385 proposed by Gazprom.
The immediate response of Miller was to close the tap with immediate effect. “From today, the Ukrainian company will receive Russian natural gas only in the amounts it has paid for,” said Miller.
Things are not so simple. Although a large part of the Siberian gas already flow directly to Europe (through the Nord Stream offshore pipeline in the Baltic Sea) from the immense reservoir already Siberian Yamal bypassing all other countries, the biggest part of Russian Blue Gold continues to transit through the Ukrainian pipeline network. Saying that “the gas supplies to Ukraine today are reduced to zero” should make European’s hair stand to end.
A mountain of bills
“We’ll only be supplying the exact amount of gas requested by our European partners to the Russia-Ukraine border,” Miller stated. This means that the Ukrainian pipeline system would receive a stream of gas directly to Europe, something like 175 million cubic meters, and let it pass without taking an atom, even if they run off their stocks. Naftogaz, the Ukrainian gas dealer, said they have stocks for domestic needs until December. Then what?
Of course, there is no time to significantly reduce Europe’s dependence on Russian gas. Bulgaria and the Baltic countries, as well as Finland and Sweden, are totally dependent on Russian gas, while others such as Poland and Austria meet up to 80% of their demand through Russia. Italy is around 20%. Nor is there time to find alternative supplies to Ukraine: not only the experiments of reverse flow (using outgoing pipelines to western countries to by Russian gas through Europe) meet only a very little part of Ukrainian requirements, but it also shouldn’t be forgotten that so far Kiev has proved a bad payer. Who wants to pile up billions in unpaid bills?
The chance for a resolution of the dispute is always possible, but remains the node of the immense debt that Kiev cannot afford.
The open secret
Price is central. Although it would seem obvious that, if Gazprom does not receive payment of gas sold to Kiev, is entitled to cut the flows, the amount of the debt itself is disputed. If, as mentioned, Russia claims a debt of $ 4.5 billion, Kiev claims to recover $6bn in “overpayment” for gas since 2010 due to the price charged by Gazprom, held off the market. In fact, the price for Ukraine in 2012 has reached 426 dollars per thousand cubic meters, compared with about 300 practiced to Europe.
It is an open secret that the question of price is not only commercial but also political. Russia continues to see energy supplies as the most effective leverage on neighboring countries and – ultimately – even Europe. In the last months, the price has undergone huge fluctuations in relation to political events, falling to $ 268 after an agreement with the former president Yanukovich, and then skyrocketing to the current 485 set after Euromaidan revolution. And in recent days Putin in person said that the price for Ukraine will never go under $ 385.
“Ukrainians will not reach for their pockets to pay $5bn per year in order that Russia can use this money to buy weapons, tanks and planes and bomb Ukrainian territory with them,” said the Prime Minister of Ukraine, Arseny Yatsenyuk. Among all those figures of billions, Miller is perfectly at ease. In the past few hours, he said that, basically, 6 billion were a special price: “The damage was much greater and Gazprom could bring another lawsuit against Neftogaz to $ 18 billion.”