EU negotiates a ‘fair’ price for Ukrainian gas

EU, Ukraine, Russia gas pipeline.
Source: DollarPhotoClub

As the Ukrainian conflict escalates, the European Union seeks to negotiate a ‘fair market’ price for Russian gas, amid fears of disruptions to supply similar to those in 2006 and 2009.

Ukraine paid for February and March supplies but bills are still outstanding for November, December, April and May. This raises concerns in Europe which gets 30 per cent of its gas from Russia.

“There is a clear ambition from Russia, from Ukraine and from the EU to avoid any interruption, to avoid any disruption, so it is quite a constructive atmosphere and I am optimistic,” Energy Commissioner Guenther Oettinger said in an interview at the Eurelectric conference. “We want to come to fair market-based prices between Russia and Ukraine as we have, more or less, in our European Union.”

So far, Russia’s Gazprom raised prices for Ukraine by 81 percent from April to $485 per 1,000 cubic meters ($13.20 per million British thermal units) by canceling previous discounts. That’s 86 percent more than front-month gas in the U.K. on the ICE Futures Europe exchange. Ukraine has called for a return to its first-quarter price of $268.50.

“No doubt $485 per 1,000 cubic meters is more or less a political price and $268 was more or less a political price as well,” Oettinger said.

Meanwhile, Europe frantically seeks to diversify its energy supplies. Jean-Francois Cirelli, president of lobby group Eurogas and vice chairman of GDF Suez SA, said yesterday in an interview: “We have to rely on energy efficiency, we have to rely on renewables, we have to rely on other sources, but shale gas should be part. I was very happy that the Commissioner was more optimistic or more engaged vis-a-vis shale gas even if it will be a long-lasting process in Europe because there are still a lot of countries to convince.”

He was, however, sceptical when it comes to the likelihood of Europe’s complete energy independence from Russia, saying: “The share of Russian gas will not decrease over time and maybe also increase because Europe is losing its indigenous production and we have to replace it and at a very rapid speed. Russian gas is one of the best suitable suppliers to replace our indigenous production.”

Russia, Ukraine and the EU discussed setting a price for the next 12 months on Monday, having agreed that there would be no supply disruptions while they analyze the plan.

“Our European ambition is to avoid any disruption for European Union gas markets and for the markets of Ukraine and Moldova,” Oettinger said. “We want to leverage Ukraine by financial assistance to pay their old bills and to buy gas in the next three months and to store gas in their Ukrainian storage facilities” before the winter, he said.

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