Russia cancels Ukraine’s gas discount and demands $1.5bn

YUKOS workers servicing an oil well on the Ust Balick oil field near Nefteyugansk, West Siberia, RussiaThe Telegraph – by Katherine Rushton

Russian energy giant Gazprom has increased the price of gas supplies to Ukraine, sending a chilling reminder of the power Russia holds over European energy markets.

The price rise comes as escalating unrest in Ukraine threatens to boil over into war – a situation that has already stoked fears of disruption to energy supplies from Russia to other parts of the world.  

Gazprom chief executive Alexei Miller said his company would raise prices next month because Ukraine was not able to pay its debts in full, and would owe the company around $2bn if it did not meet its bill for February.

In the past, Russian president Vladimir Putin has granted Ukraine a discount on its gas supplies. However, the deal, which has to be renegotiated every three months, has not been renewed and has handed Russia a mechanism with which to ratchet up pressure on Kiev.

Mr Putin insisted that Gazprom’s decision was unrelated to political tensions. “This makes perfect commercial sense. This has nothing to do with situation in Ukraine. We gave them money, they failed to deliver,” he said in a televised conference.

“They failed to pay off the debt, I think it’s $1.5bn as of today, and if they don’t pay for February it’s going to be $2bn. So if you don’t pay, then let’s go back to regular prices.”

However, he did not have many people convinced. Mikhail Korchemkin, head of East European Gas Analysis, described the gas wars as a “traditional Russian move to pressure Ukraine”.

The European Union said on Tuesday it would help Ukraine pay its debt to Gazprom. Officials are understood to be preparing a €1bn aid package, ahead of an emergency summit on Thursday. The International Monetary Fund is also expected to provide €15bn to Ukraine this year, and the US has pledged a $1bn loan.

Meanwhile, some analysts argued that Russia had overplayed its hand, and under-estimated the potential for countries like Ukraine to exploit their own shale gas reserves.

“The biggest threat to Moscow, in our view, may well be 21st century shale technology,” Bank of America said in a note. “With NATO military protection, European capital and American technology, Ukraine could potentially become a competitive gas supplier to EU markets. After all, the pipeline infrastructure is already in place.”

Even so, the timing of the Gazprom decision solidified fears that the unfolding crisis in Ukraine could impact energy markets worldwide – especially in the European Union, which gets more than a quarter of its gas from Russia.

“Russia’s involvement magnifies the scope for market contagion and increases the possibility that global energy prices will be affected both directly and indirectly,” said Stephanie Flanders, chief market strategist for JP Morgan.

Analysts fear that Russia – one of the world’s largest oil and gas producers – could be blocked from exporting energy supplies if it declares war on its neighbour, or that the conflict in Ukraine could disrupt supplies of gas that are transported through the region.

US oil prices have jumped to nearly $105 a barrel this week amid expectations that Europe would have to turn elsewhere for its energy supplies, although it has since fallen back. Meanwhile, the Intercontinental Exchange said that trading on gas futures had reached an all-time high, as investors bet on gas prices soaring.

Ms Flanders said that the direct economic impact to Ukraine was likely to be “fairly limited”, but that recent events had “pushed investors into ‘risk-off’ mode and are likely to be a source of continued volatility, especially if Ukraine appears to be heading toward a messy sovereign default”.

That appeared true as investors turned to the dollar and US stocks as a haven for their money.

The flight to safety pushed America’s blue-chip index, the S&P 500, into record territory on Tuesday. It was trading up 25 points, or 1.3pc, at 1,871 in mid-morning in New York, while the Dow Jones Industrial Average rose more than 200 points, or 1.3pc, to 16,374.

In Britain, the FTSE 100 also benefited, rising 1.7pc, or 115.42 points, to 6,823.77.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/10676228/Russia-cancels-Ukraines-gas-discount-and-demands-1.5bn.html

One thought on “Russia cancels Ukraine’s gas discount and demands $1.5bn

  1. Now you know why our government doesn’t want you to collect rain water from your roofs so you can be independent. Or raise live stock and grow your own food. It’s all about control and governments ability to instantly shut you off from their grid.

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