Talk about non-seasonal events. The world is used to the routine energy crisis that is the annual January gas-spat between Russia and Ukraine, as the two renegotiate contract terms. But this is May. Surely some mistake eh Russia?
First, AFP reports:
MOSCOW (AFP)–Russia and Ukraine may be close to a new gas crisis as Kiev faces difficulties making payments, an official accompanying Prime Minister Vladimir Putin to Kazakhstan was quoted as saying Thursday.
“If things are that bad in the financial sphere…we could conclude that we could be on the brink of a new gas crisis,” news agencies quoted the official as saying, referring to Ukraine’s poor economic situation. Ukraine has been one of the countries worst-hit by the financial crisis and its energy giant Naftogaz has sharply reduced purchases of gas from Russia as a result.
According to the unnamed Russian official, Ukraine’s Naftogaz doesn’t have enough funds for the purchase of gas needed for its client’s summer orders and its underground reserves are depleted. He also said Russian gas export monopoly OAO Gazprom (GAZP.RS) had paid Ukraine in advance for the rest of 2009 for transit services Ukraine provides Russia for shipping gas to European neighbors.
Reuters, meanwhile, says:
ASTANA, May 21 (Reuters) – Russia and Ukraine are on the verge of a new gas dispute, a Russian government source said on Thursday, adding the row was now centred around gas stocks in Ukraine to ensure smooth Russian gas transit to Europe.
“(Ukrainian energy company) Naftogaz has already received advance payments for Russian gas transit for the whole of 2009,” the source said on condition of anonymity. He was speaking ahead of talks between Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko scheduled for Friday in the Kazakh capital.
“If Ukraine cannot solve the problem of stockpiling gas in the summer, it would mean that Naftogaz won’t be able to meet its transit obligations to European customers this winter,” the source said. “In principle we can come to the conclusion that we are on the verge of a crisis.”
But, that doesn’t necessarily appear to be the view from Ukraine.
First, the aforementioned Ukrainian energy firm Naftogaz at the heart of the issue insists its finances are in much better shape than is being implied by government gossip. The group on Thursday even reported a (shock-horror) net profit of 3.2bn hryvnias ($420m) versus a loss of 900m hryvnias ($120m) the year before.
But then again, the current crisis actually centres around the firm’s ability to buy the gas stocks necessary to guarantee smooth Russian gas transit to Europe. With debt repayments due imminently, including the maturity of a $500m Eurobond in September, it is entirely possible Naftogaz’s priorities may not be so inclined. Its overall debt position is reported by Reuters as follows:
Naftogaz owes a total of $1.63 billion in dollar debts, including the $500 million Eurobond. It was twice in technical default on this for failing to produce its accounts on time. Investors have been jumpy about Ukrainian foreign currency debt after the hryvnia currency lost 60 percent of its value to the dollar at the end of last year and the country was plunged deep into recession.
So will this all result in a new energy security cataclysm for Europe? As always with Ukrainian/Russian gas disputes, we guess the world will simply have to wait and see.
In the meantime, however – to illustrate just how close the issue of gas is to the hearts of the Russian people – we direct you to the following two Youtube clips; the first is a Russian military choir rendition of “If Ukraine joins Nato, we’ll shut off the gas”, and the second is a simple-yet-catchy ditty named “The Gazprom song”, which goes something like this:
Don’t bother trying, you’ll never ever find
A surer friend than Gazprom
We’re giving people warmth and light
For office and for home
We should always keep in mind
From dawn till sun down,
That our work is always needed
Working day or holiday
Let’s drink to you, let’s drink to us,
Let’s drink to all the Russian gas
That it never comes to an end,
Though it’s so hard to obtain
Let’s drink to you, let’s drink to us
Let’s drink to all the Russian gas
For those extracting the new sun
From down beneath the ground
We’re renowned for our deeds
The world over
And all your troubles will recede
If Gazprom people are nearby
Don’t try, you’ll never ever find
A surer friend than Gazprom
We’re giving people warmth and light
For office and for home
Let’s drink to you, let’s drink to us,
Let’s drink to all the Russian gas
That it never comes to an end,
Though it’s so hard to obtain
Let’s drink to you, let’s drink to us
Let’s drink to all the Russian gas
For those extracting the new sun
From down beneath the ground
Related links:
Russia vs Ukraine, the costs – FT Alphaville
The Big European energy freeze – FT Alphaville
Russian gas cut latest – FT Alphaville