Russia is threatening to cut off gas flows to Ukraine on January 1 if Kyiv does not fork over $2 billion in late payments and finalize new gas prices for 2009.  However, a stop in gas supplies now will be different than it was in January 2006; this time around Ukraine has amassed enough reserves to get it through the winter (as has Germany). 


Russian Prime Minister Vladimir Putin said Ukraine will face “serious consequences” should it disrupt transit shipments of natural gas to Europe after Russia’s neighbor rejected a “discounted” pricing offer from OAO Gazprom.  Ukraine rebuffed an offer made by Russian gas exporter Gazprom to sell it natural gas next year at a price of $250 per 1,000 cubic meters, Putin told President Dmitry Medvedev in remarks broadcast today on state television.  Ukraine now pays $179.50 per 1,000 cubic meters.

However, Kyiv strongly rejected the claim that it would interrupt the flow of Russian gas to Europe.  RFE/RL:

Officials from [Gazprom] said they had received a letter from Ukraine’s state energy firm Naftogaz stating that if Russia turns off the gas, Ukraine could confiscate Russian fuel bound for customers in Western Europe.  “We cannot describe this position from Ukraine as anything other than blackmail,” Aleksandr Medvedev, head of Gazprom’s export arm, told a news conference.  “And they are blackmailing Gazprom, Russia, and Western Europe.”

Naftogaz declined to comment on the existence of any letter.  But President Viktor Yushchenko’s First Deputy Chief of Staff Oleksander Shlapak said it would not interfere with European supplies.  “Ukraine guarantees the technical, secure, reliable, and uninterrupted transportation of Russian natural gas to European countries through its territory,” he said.

The Russian gas exporter confirmed that Ukraine’s payments have begun, while Naftogaz claims it has paid the full $1.5 billion bill (but not the approximately $500 million in late fees).  Gazprom even suggested alternative forms of payment:

“We are looking for ways to [avoid a supply cut], including prepayment for transit,” Gazprom spokesman Sergei Kupriyanov told Echo Moskvy radio station. “I hope we will be able to [negotiate a settlement] in the remaining days.”  Ukraine previously declined to accept the proposal.  Russia currently pays Ukraine $1.70 to transit 1,000 cubic meters for 100 kilometers.  Kupriyanov said another option for Ukraine to pay its debt would be to hand back gas it had stockpiled in underground gas storages to help it survive the winter in the event Gazprom turns off the gas taps.

Naftogaz recently said it has around 17 billion cubic meters of gas reserves, about 22 percent of Ukraine’s annual consumption.  Smart money says Kyiv won’t be returning these reserves any time soon.  Germany has also built up large stores of gas, so any disruptions to the supply lines this winter should not leave Europeans in the cold.  

The potential for instability remains real.  Gazprom provides around a quarter of Europe’s gas, amounting to 42 percent of the EU’s gas imports; 80 percent of this comes through Ukrainian pipelines.  Meanwhile, the deadline of 10:00 a.m. local time in Ukraine looms…

Peter Cassata is an assistant editor at the Atlantic Council.