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Ukraine prepares to sue Gazprom in Stockholm over natgas deal

Highlights

Ukraine is preparing to take Russia to an international arbitration court in Stockholm over the natural gas deal signed between Naftogaz and Gazprom in January 2009, Energy and Coal Industry Minister Yuriy Prodan said Friday.

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"When does the government plan to sue Gazprom to eliminate the deal with Naftogaz Ukrayiny?" Prodan said, addressing lawmakers in Parliament. "This work has been done since day one of my appointment to office. We [have] come through [the] preparation of relevant documents and reviewed the disadvantageous conditions that now exist in the contract."

Ukraine is closely working with international lawyers that have previous experience of litigation with Gazprom, Prodan said.


"We invited international lawyers who have experience with companies that filed claims in court in Stockholm against Gazprom," Prodan said.

Russia has increased its gas price for Ukraine by more than 80% since the beginning of the month, a move that threatens to undermine Ukraine's fragile economy.

The price increased to $485 per 1,000 cubic meters in the second quarter, up from $268.50/1,000 cu m in the first quarter, following the cancellation of two separate discount agreements in December 2013 and April 2010.

Ukraine says the new price is unacceptable and politically motivated.

SUPPLY DISRUPTIONS

Meanwhile, Ukraine is preparing for a possible disruption of natural gas supplies from Russia and seeking to resume imports of alternative gas from Europe, Prodan said.

The fear of disruption accelerated after Russian President Vladimir Putin informed European leaders Thursday about the "critical situation" over Ukraine's natural gas debt and the possible impact on the transit of gas to Europe.

Earlier this week, Ukraine missed a deadline to pay for its March gas supplies and to reduce its $2.2 billion debt owed to Russia for gas.

Prodan said Ukraine's strategy to respond to the disruption would be to start imports of natural gas from Europe using pipelines that go through Poland, Hungary and Slovakia.

Ukraine is capable of importing about 7 billion cu m of gas annually from Europe via existing gas pipeline routes in Poland and Hungary, but opening a route via Slovakia would increase capacity to about 25 Bcm/year.

"The spare capacity through Slovakia is about 20 billion cu m of gas per year, which is about 50 million cu m/day," Prodan said. "There is about 20 million cu m/day capacity in the route via Poland and Hungary, which would be enough to pass through the high-demand season."

However, Ukraine still hopes to reach a compromise with Russia over natural gas prices to get an "economically justified" price, as opposed to a "politically motivated" price, Prodan said.

Ukraine is the main supplier of Russian gas to Europe, which accounts for more than half of such shipments.

Gazprom cut off gas supplies to Ukraine twice in the past nine years, in January 2006 and January 2009, also disrupting supplies of its gas to Europe via the Ukrainian pipelines.

--Alexander Bor, newsdesk@platts.com
--Edited by Peter Lucas, peter.lucas@platts.com