Russia-Ukraine Gas Crisis: The Impact On European Energy Security | ||
Russian gas export monopoly Gazprom restarted gas flows into Ukraine’s pipeline system for transit to Europe on January 20, with Ukraine beginning to receive Russian gas through the Sudzha compressor station at 10.05am (0705GMT). The volume of deliveries was increased on all routes until the system reached normal operation, with Russian gas supplies restored to all European customers by late on January 21. The resumption of supplies finally signalled an end to the Russia-Ukraine gas crisis that began with Ukraine’s gas supplies being cut off on January 1 and led to flows to Europe being halted from January 7, with southern-central Europe the worst hit area.
The resumption of the gas flow to Europe came after a number of false starts and bitter wrangling between Moscow and Kiev over debts and the price that Ukraine will pay for Russian gas during 2009. The two sides finally signed a 10-year contract on January 19. Over the whole of 2009, Gazprom has committed to supplying up to 120bn cubic metres (bcm) to Europe through Ukraine, plus a further 40bcm for Ukraine’s domestic use. The price that Gazprom will charge Ukraine will be US$360 per thousand cubic metres (mcm) in Q109, which is almost exactly double the US$179.50/mcm Ukraine paid in 2008. It is based on the ‘European price’ of US$450/mcm minus a 20% discount. Prices will change every quarter under the deal and as gas prices tend to lag oil prices by around six months, we expect the price to come down significantly in Q2 and H209. There will then be a full switch to market prices in 2010. With Russia’s transit fees in 2009 to be frozen at 2008’s level of US$1.70/mcm per 100km, it appears that Moscow has emerged triumphant from its game of chicken with Kiev.
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