Russia Cuts Off Gas Supplies to the Ukraine

Yves here. Although the Russian move to stop supplying gas to the Ukraine unless it pays upfront is an important, if expected, development, its immediate impact will be blunted by it taking place during the summer. From the Financial Times:

Analysts said an immediate energy crisis was unlikely because both Ukraine and gas buyers in Europe have built up plentiful stocks after a mild winter. Benchmark spot gas prices in Europe, which have dropped by almost 40 per cent this year, rose just 2 per cent on Monday.

Gazprom – which relies on exports to Europe for a large share of its revenues – has stressed that it will continue to deliver gas to European customers, including increasing supplies through routes that bypass Ukraine, if necessary.

Although Ukraine says it has 14 million cubic meters of gas stored, apparently enough to carry the country through December, the relationship between the two sides has become so poisoned that it’s not obvious how a deal could get done before then. And why should Russia make concessions? The FT again:

Those talks ended in the early hours of Monday morning with both sides intransigent.

“In fact we couldn’t really discuss because Ukraine insisted only on one position,” said Alexei Miller, chief executive of Gazprom, referring to several recent rounds of negotiations aimed at resolving the deadlock.

Both sides are also suing each other, with Gazprom demanding $4.5 billion it says is past due, and Ukraine’s Naftogaz countersuing for $6 billion in alleged overcharges since 2010.

More detail from OilPrice:

Russia cut off gas supplies to Ukraine on June 16, saying Kiev had missed a deadline to pay nearly $2 billion of a total debt of more than $4 billion that it owes for past gas deliveries. Now, Moscow says, Ukraine must pay in advance for any gas it receives.

During the talks in Kiev, each side clung to its negotiating position. Moscow’s has been to keep the price of gas at the original level set in a 2009 contract of $485 per 1,000 cubic meters, but at the same time to waive an export tax that would reduce the price to $385.

Kiev’s position has been that the tax waiver was simply a way for Moscow to exert leverage on its smaller neighbor because it could always restore the duty.

During a meeting in Gorki, outside Moscow, Gazprom CEO Alexei Miller told Russian Prime Minister Dmitry Medvedev, “Thanks to the unconstructive position of the Ukrainian government, today a prepayment system was introduced.”…

Ukraine’s pipeline from Russia also carries gas to EU countries, but Gazprom spokesman Sergei Kupriyanov said Ukraine was obliged not to siphon any of it for its own use. Nevertheless, Gazprom has notified the European Commission of a “possible disruption” of the gas flow if Kiev doesn’t meet this obligation.

Tim Ash, an energy analyst at Standard Bank PLC, told the Associated Press that Kiev could theoretically tap some gas meant for the EU, which wouldn’t hurt European customers now, but could make it harder for them to stockpile gas for the winter.

While a lot can happen between now and December, there’s nothing here that gives reason to think either side will budge. The Ukraine may hope that it can stick to its guns and that if it gets to the late fall and Russia has not budged, the West will provide some combination of pressure, cash, and other inducements to get Russian gas supplies restored, given that Ukraine can simply steal gas from Europe and use a humanitarian crisis as an excuse. This may prove to be optimistic thinking. And if the Ukraine pinches more than a little bit of gas bound for Europe, it’s going to become politically even more difficult for Europe to provide active support to the Ukraine.

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  1. James Levy

    The wailing and gnashing of teeth in the MSM at the horrible situation we are in BECAUSE THE RUSSIANS WANT TO GET PAID FOR THEIR NATURAL GAS is priceless if it weren’t so scary. The US embargos countries all over the world for decades, cutting them off from food and medicine, even if they beg to pay for it cash on the barrel head, but the Russians are demented ogres because they demand to get paid up front for their natural gas. It’s just unreal.

    1. hunkerdown

      Au contraire. It is very real. And while we’re processing this one, Karl Rove’s going to bake up a few more for us.

  2. Synopticist

    These things do tend to happen if you don’t pay your utility bills. ( I speak with experience in this matter).

  3. optimader

    “Ukraine’s pipeline from Russia also carries gas to EU countries, but Gazprom spokesman Sergei Kupriyanov said Ukraine was obliged not to siphon any of it for its own use.” = lol

    At todays exchange rate and everyone in Europe has to kick in 3.47 Euros to get the padlock taken off the meter.

    1. gordon

      Meanwhile, Ukraine makes a fortune from its exports of bananas and pineapples. I wonder how they heat those greenhouses!

      1. hunkerdown

        Is Japan “the Japan”? Is Australia “the Australia”? Are countries Time Lords now or something?

    1. NotTimothyGeithner

      Yeah, it’s the United Kingdom, the French Republic, and the Federal Republic of Deustchland, but I still call them the birthplace of Patrick Stewart, the future birthplace of Jean Luc Picard, and Germany.

      There is being PC, and there is being he/she obnoxious.

    2. Gaianne

      –Don’t call it the Ukraine”–

      Neither Russian nor Ukrainian has articles. There is no distinction between “Ukraine” and “the Ukraine” in these languages. This is identity politics–for consumption by the sheeple in the Anglo world–at its most tawdry.


  4. Peter Pan

    Wouldn’t it be amusing if Russia could reverse flow the (unpaid) natural gas stored in Ukraine back into Russia? I’m thinking a software hack in combination with monetary compensation to oligarchs (corruption) for any manually operated gates and pumping stations to effect the reverse flow.

    Today we have gas until December. Tomorrow we have no gas. We’re totally fracked.

    1. hunkerdown

      I half fancy that Russia should shut the pipe solid and inform Europe their gas has been delivered to Kyiv for onward distribution.

  5. Paul Tioxon

    At 10 a.m. Thursday, city police and employees of Philadelphia Gas Works knocked down the door of a North Ninth Street rowhouse and shut off gas to the furnace, stove and hot-water heater.

    The tenant, virtually housebound with severe asthma and owing PGW more than $8,000, said she spent the weekend in an upstairs room, warming her seven children with an electric space heater. She asked that her name not be used.

    The specifics of the case are in conflict. The 28-year-old woman said one of the utility’s employees, acting on a medical certification from her doctor, had restored the service a week earlier, around Thanksgiving Day.

    But PGW spokesman Kevin Boyle disagreed. He said that the utility had no record of restoring service and that workers broke down the door to investigate a report that the woman was stealing gas and it was leaking.

    “We have authority to enter with the police and check for gas,” he said.

    To advocates for the poor, the case points up what they say is a disturbing new trend at the gas works, a new hardball interpretation of laws meant to protect the disabled.

    PGW has been on a yearlong campaign to crack down on nonpaying customers, who owe the city-owned utility millions – and it appeared to be ratcheting up its tactics before the moratorium on winter shutoffs began Friday. PGW cannot terminate service to low-income customers between December and March.

    Data on how many customers lost service as a result of the crackdown were not available, but advocacy groups say the number is high.

    “We’ve never seen anything like this before, this number of PGW shutoffs,” said Elizabeth Hersh, executive director of Tenant Action Group of Philadelphia, an organization that provides housing and utility grants to the poor.

    “A woman called a week before Thanksgiving, and said ‘Please call me back, the gas man is right here,’ ” said Donna Peters, another TAG counselor. “I had to call back and speak to the gas man and let him know they’re eligible for assistance.”

    Boyle, the PGW spokesman, said that the utility was being more diligent in collecting past-due amounts, but that there had been no recent step-up in shutoffs.

    He also said PGW was complying with city regulations governing shutoffs.

    “That’s what the issue comes down to. It’s how do you interpret the (regulation), and PGW is interpreting it very tightly right now,” said G. Christian Kimmerle, executive director of the Philadelphia Gas Commission, which regulates PGW.

    Social worker Valerie Ling has lived with the case of 76-year-old Maria Rivera for six weeks. Rivera speaks no English. She suffers from diabetes, vascular disease and arthritis. A monthly Social Security check of just over $400 is her primary source of income.

    Service was off in the Ontario Street residence in September when Rivera moved in. “She’s been living in the cold for three months,” Ling said. A neighbor lent her an electric heater.

    Ling said PGW is dunning Rivera for $400 for service at a previous residence, service the woman swears she never had. She can afford neither that nor the $24 turn-on fee.

    “PGW has proof of income, they know the rent, they have a medical certificate. Now they want proof of who she is,” Ling said.

    Boyle said PGW does not discuss individual cases without written authorization from the client.

    The gas commission’s investigation of complaints turned up no evidence that PGW is breaking any rules, Kimmerle said.

    This is the first winter that PGW can shut some customers off after Dec. 1, a change from the widely abused rule of the past that prohibited any winter shutoffs. Now, those who have the ability to pay are not automatically protected from shutoff.

    At any time of the year, a customer with a severe medical condition can apply to have service restored by supplying PGW with certification signed by a ”qualified health-care provider.” PGW then must delay the termination for 30 days, or, if the customer has already been cut off, restore service for 30 days.

    The certification is renewable.

    The customer must enter into a payment agreement during the 30 days or risk losing service. PGW can take action the moment the certification expires.

    “PGW is using medical certification as a collection tool, which is not allowed,” said Val Bullock, a caseworker at Community Legal Services. “PGW has no gray area. The customer is always the bad guy, always trying to get one over on the company.”

    Kimmerle of the gas commission said the matter is open to interpretation. ”As PGW has scrutinized accounts more closely, there is a provision that in the event of a medical emergency, service can’t be shut off, but it’s a difficult situation overall, because historically that provision has been open to different interpretations.”

    The parties said they are meeting informally this week to work out their differences.

  6. Abe, NYC

    There could be another solution, long overdue: for Europe to form a cartel to counter Gazprom’s monopoly with a monopsony. It should be in everyone’s interest, not just Ukraine’s, it’s been mentioned in the current crisis and is probably already in the works. There are a couple of obvious problems though: first there are outstanding contracts, and the time is pretty short.

    1. OIFVet

      And where, pray tell, will other producers of natural gas materialize from? American LNG? I think not. I guess Poland better start fracking those substantial shale deposits! Well, not so fast, apparently Polish shale is a mirage: Qatar? I doubt Assad will be feeling the warm and fuzzies any time soon for those degenerates. The ‘Stans? They seem to be looking to the East. So who are those other sellers for that swell little monopsony you are envisioning? Like it or not, Europe needs Russia, and Russia needs Europe.

      1. Abe, NYC

        This isn’t about finding other producers. Europe’s position would be much stronger if it negotiated with Russia as a single entity. It could set much more favorable rates and prevent Gazprom from abusing its monopoly, which it has repeatedly done in the past and is doing now: it wants to charge Ukraine a higher price than any other country. All this hurt talk about paying its bills is appalling, since currently the supplier can arbitrarily set the price.

        As for diversifying away from Russian gas, Europe knows it must do it and so it will. It’s not impossible: Central Asia is full of gas; but it will be long, difficult, and expensive. Europe hardly has any choice though if it doesn’t want to live with a Russian gun to its head and depend on a country that has destroyed the foundations of European security.

        1. Banger

          I believe Gazprom wants Ukraine to pay the Euro rate for gas. When Ukraine had good relations with Russia, Gazprom gave it a discount. Now that Ukraine is allied with U.S. why should Russia give it the same discount?

          1. washunate

            That’s what’s funny about all this. Ukraine wants to sleep with NATO yet still get the home team discount with Russia.

            1. Abe, NYC

              That’s not funny because there is no global market for natural gas. In the absence of such and the presence of a monopoly, it’s a no holds barred game for either party.

          2. Abe, NYC

            No, Russia wanted the Ukraine pay more for gas than any other country – at least that was their initial position.

        2. OIFVet

          If central Asian gas will be so expensive it sort of defeats the purpose, doesn’t it? I get that this is about hating on a country that has the self- respect and the wherewithal not to kow-tow to the US, but talking about crazy logic… And the EC itself has stated that the Russian offer to the Ukraine was more than fair, but the Ukie nazis are like children at Toys-R-Us, throwing a temper tantrum because they think that they are too special to pay market rate.

          1. Abe, NYC

            Central Asian gas would be expensive because it has to be transported half way around the continent. But Siberia is not exactly next door either, the main difference is that the pipelines are already in place (and there is no Caspian Sea in the middle). The price tag on Central Asian natural gas would have to be extremely high to make undermining Gazprom’s monopoly unprofitable both politically and economically.

            The main obstacle the way I see it, is that Central Asian regimes are pretty unsavory, just ask Craig Murray. But then, Russia is moving further and further away from whatever passes for democracy and rule of law these days.

            1. OIFVet

              IOW it ain’t gonna happen. South Stream will come online sometime in 2015-2016. I have it on good authority that BG is actually still working on the construction despite what the PM told McCain, and the EC has made some conciliatory noises this week. This leaves the Ukies in the cold, literally and figuratively. It couldn’t happen to a more deserving bunch of fascists, though I do feel bad for the little people.

        3. Fiver

          You are completely wrong about the price conflict, and much else, but with this statement: ” Europe hardly has any choice though if it doesn’t want to live with a Russian gun to its head and depend on a country that has destroyed the foundations of European security.” you reveal you have no idea what you’re talking about.

          The US owns this debacle, just as it owns the horrors in Syria, in Libya, Egypt, Afghanistan and Iraq, and Yemen, and Somalia and….. There are hundreds of quality independent news sources and analysts available to you with a few quick, simple Net queries that destroy the Official Narrative, which you parrot. There are also public and university libraries that still contain more than enough documentation to put to rest forever any thoughts to the contrary.

  7. Tom W Harris

    Or, Ukraine could pay its gas bill. Or stop burning ethnic Russians alive. Or get rid of its Nazi filth-ridden government. Or all three.

    Just a thought.

    1. jon lee

      If I am not mistaken, extreme-right Ukraine presidential candidates got about 2 pct in total, For Putin supporters Nazi/facist is a generic term for anyone that do not agree with Putin. But the fact is that Putin supports/is supported by extreme-right both in Russia and Evrope.

      1. Lexington

        The equation of Ukrainian nationalism with Nazism is a dominant theme in Russian propaganda and tirelessly parroted by its apologists -including, sadly, Bernhard of Moon of Alabama, who is regularly featured in links here, notwithstanding the fact that he has turned the rabidly anti-Ukrainian diatribe into a personal specialty.

      2. OIFVet

        Election politics are so irrelevant. It is about control of key institutions, and they so happen to control all of the security organs in the Ukraine. Them that has the guns has the power. Burn some russkies alive and have your illegitimate junta PM call them subhumans and a thinking person starts to get the picture of who has the power, or at least who is the muscle behind it. It really is that simple.

          1. Fiver

            It is not ‘Russian propaganda’ vis a vis the roughly 10% of Ukrainians on the far right who featured so prominently in the coup, any more than it is left-wing ‘propaganda’ to term the US State a full-blown fascist entity with conditional ‘rights’ for the well-to-do so long as they don’t try to change anything.

            1. Lexington

              Here’s the thing: “right wing” is not actually synonymous with “fascist” (let alone “neo Nazi”). The Ukrainian nationalist right might be undesirable, but that doesn’t in itself establish their “fascist” bona fides. To the extent this equivalence makes any sense at all it is based on argument that some Ukrainian nationalists in World War II like Stepan Bandera tried to forward their aims by collaborating with the Nazis (the fact Bandera himself ended up in a concentration camp is usually tactfully omitted). Apparently, because some modern Ukrainian nationalists revere Bandera that makes them “fascists”.

              Then there was the fact Ukrainian nationalists did some bad things during the war. As a result of the Molotov-Ribbentrop Pact about half of Poland was incorporated into the USSR, a significant chunk of which is now the western Ukraine (the USSR never relinquished the part of Poland in annexed in 1939, instead it compensated Poland in 1945 by allowing it to annex all German territory east of the Oder-Neisse Line, effectively moving the whole country westward, and helpfully conducted a very thorough cleansing of the German population in order to ready it for Polish habitation. Surely this must have been mentioned at some point during RT TV’s very extensive coverage of the Ukrainian crisis?). Some Ukrainian nationalists sought to solidify their grasp in the former Polish territory by ridding it of Polish people. which is despicable, but no better and no worse than what the Germans and Soviets had done to various peoples in the contested territories.

              The vilification of Ukrainian nationalists as “fascists” is an effective meme for manipulating the weak-minded historical illiterati -which is to say most people- but it is not only inaccurate but an impediment to understanding the context of the current crisis. You at least acknowledge that the far right is a minority of the nationalist movement, which is a improvement on the widely held implication, assiduously promoted by pro-Russian publicists, that Ukrainian nationalism and “fascism” are synonymous.

      3. Yonatan

        Lets see. Members of the right wing party Svoboda hold the posts of Vice Prime Minister, Minister of Defense, Minister of Agrarian Policy and Food, Minister of Ecology and Natural Resources. That is the far right in Ukraine controls Defense, Food and Energy, along with the 2nd in command position. I think they have control far in excess of the support.

      4. sid_finster

        Except that representatives of those same self-described Nazi parties controlled and continue to control several key Junta ministries.

        1. ToivoS

          Not to mention that the Right Sector controlled Kiev maidan tent city and barricades are still in place. It looks like Poroshenko can’t get rid of the neo-nazis if he wanted to as I suspect he does. The neo-nazis have substantial control over the streets throughout western Ukraine. To challenge that power would require a central police force and probably the national guard that is not infiltrated with Right Sector thugs. Such forces are not available to Poroshenko.

    2. Jay

      Or they could round up a handful of oligarchs who made their money by making Ukrainians poor and have enough gas left over until the winter after next.

        1. NotTimothyGeithner

          There never really was a Libya. Gaddafi had some pan-arab appeal for a time and was seen as a fair arbiter, but it’s just isolated coastal towns/cities, the Sahara, and too far from Egyptian oases and the Carthage area to ever be absorbed into any organization other than Italian peninsula/whoever controls Syracuse domination or perhaps conflict.

          One element of Gaddafi-era elite with foreign contacts (a truly oppressed lot) subverted popular urban protests to try to grab the top spot. Of course, Gaddafi didn’t have that much stashed away because it was used to buy products Libya didn’t make such as medicine, and now they are fighting over scraps. NATO and the U.S. went in for the usual reasons*. Given the potential refugee crisis which is still unfolding,I personally think Italy and France did have legitimate concerns in picking a side. It was bungled, but I blame U.S. thugs throwing their weight around.

          The basic problem is the cities are fighting over the desert without defined city state identities or even an understanding that is what they really are. Of course, Islamicists and Hefter are on the loose.

          -because we can; Gaddafi and pan Arabism pan Africanism didn’t pan out, so he is really just a glorified arbiter.
          -the DoD is terrified of nonUS countries being seen as solving problems with less egregious militaries
          -the shallow bleeding hearts
          -revenge notions
          -the hawk types

  8. John

    The US and Europe talked up a good solidarity game with the Ukrainians….. they should now help pay down their previous debt with Gazprom…. with no strings attached.

    One thing the Ukrainians can depend on is they will be put into deep peonage to the West. That is already in the works.

    1. /L

      Of course EU should pay Ukraine’s gas bill, and subsidize further gas consumption as a guarantee for uninterrupted gas delivery’s via Ukraine. :-|
      The former Russian subsidizing of gas to Ukraine was in fact also an subside of Ukraine Current Account deficit that gave them more room to import from EU.

  9. madisolation

    From Dmitry Orlov:
    “it seems safe to already place Ukraine among the other US foreign policy fiascos. It is at this time still a slow-moving fiasco, but we should expect it to pick up pace. We should also expect it to get bigger: come next winter, if Kiev is dark and much of Europe is shivering in the cold, and Ukrainian nuclear reactors are on the verge of meltdown, the Europeans may start thinking that perhaps Americans are not their friends at all, that NATO membership is a bad idea, and that America’s sycophants in Brussels should be given the boot along with the EU and the Euro. And this would make the spring of 2015 very interesting.”

  10. Max Pyziur

    It’s “Ukraine,” not “the Ukraine.”

    For country names, “the” is used for collective entities or territories reflecting the use of a political system: “The Philippines,” “the United Kingdom,” “the United States,” “the Czech Republic,” and “the Russian Federation” (even though it isn’t a federation).

    Use of “the” with a country toponym that doesn’t conform to the preceding rule generally indicates de facto allegiance to some sort of imperial claim or subordination. “the Ukraine” seems to be the most frequent occurrence, but occasionally and to a lesser degree, there are occurrences of “the Argentine” and “the Lebanon.”

  11. Jackrabbit

    Game of Kievchickenhawks.

    Could it be that US *WANT* to shut down gas deliveries of gas to Europe to strangle the Russian economy? To ascertain if this is true requires answers to questions like:

    1) Is the Russian pipeline to China complete? When would sales to China begin?

    2) What is the capacity for Europe to make up for Russian energy over time? TINA means doing things that are unpopular like:

    a) fracking (Europe has been reluctant to to this but this might be a boon for US energy firms)
    b) re-starting German nuclear plants (were they ever stopped? or just planned to be stopped?)

    While its seems clear that Europe cannot easily or quickly move away from Russian gas, the more that Russia is vilified the more likely that TINA can be invoked in europe. If gas deliveries to Europe are, for example, 30% less in 2015 than it was in 2013 and 70% less in 2016, while sales to China have not yet begun, then the Russian economy would suffer greatly. I just don’t have enough info to say if the US/West might be implementing such a plan.

    Such a plan might explain the MSM silence on East Ukraine and outrageous Ukrainian actions that seek to provoke a response from Russia.

    H O P

    1. Jackrabbit

      Well, I’ve read that Europe has been reluctant to frack, and now I looked at news items from the signing of the Russia-China gas deal. Gas deliveries to China are not scheduled to start until 2018. This seems to make Russia somewhat vulnerable economically – if Europe can find the means/resolve to cut back on their use of Russian gas.

  12. sid_finster

    Nope, only “moderate nationalists” who sometimes used to say politically incorrect things, but they’ve reformed now, just ask Timothy Garton Ash.

  13. Fiver

    Ukraine’s position on the gas price was absurd from the outset, as has been virtually every move made it’s made since the Feb 22nd coup. It is evident to any who can think that the US has gone off its rocker in response to the world’s reaction to its (US’s) policy failures across the board so far this century.

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