Putin Warns Europe "No Alternative... Will Cut Gas Supplies"

Tyler Durden's picture

European partners have left Russia with "no alternative" but to halt supplies of gas to Ukraine and Europe, according to a letter from Russian president Putin to European leaders.

  • *EUROPEAN PARTNERS LEAVE RUSSIA 'NO ALTERNATIVE,' PUTIN SAYS
  • *RUSSIA TO HALT UKRAINE GAS IF PAYMENT VIOLATIONS GO ON: PUTIN
  • *PUTIN: RUSSIA UKRAINE GAS SUBSIDY WORTH $35.4B IN PAST 4 YEARS

The remarks, as Reuters reports, were the strongest sign yet that Russia could curtail supplies of gas to (and through) Ukraine affecting supplies of gas to Europe (as they fear Ukraine will siphon off Russian gas meant for Europe). Russia is already reducing its delivery through Ukraine but it stil represents 39% of Europe's demand. Gazprom has also been forced to move to pre-payment terms on any future deliveries (there's your IMF bailout).

Via Reuters,

President Vladimir Putin has told European leaders a dispute over Ukraine's gas debt to Russia could affect supplies of Russian gas to Europe and proposed urgent discussions on the matter, his spokesman said on Thursday.

 

The remarks were the strongest sign yet that Russia could curtail supplies of gas to Ukraine, which could increase tension between Moscow and Kiev and aggravate the worst crisis in East-West ties since the Cold War.

 

"The situation is urgent," Putin's spokesman, Dmitry Peskov, said after Putin sent a letter expressing deep concern about Ukraine's $2.2 billion gas debt and warning of a possible impact on the transit of Russian gas to the European Union.

 

In the letter, Putin proposed "mechanisms of dialogue for urgent discussions of the situation that has developed," Peskov said. He did not give any details about the proposal or say which leaders were addressed.

Putin also added that Ukraine is in trouble...

  • *PUTIN SAYS UKRAINE IS HEADING TOWARD DEFAULT
  • *PUTIN URGES TALKS WITH EU MINISTERS ON UKRAINE GAS DEBT
  • *PUTIN: RUSSIA UKRAINE SUBSIDY INCLUDES $18.4B TAKE-OR-PAY FINE
  • *GAZPROM FORCED TO MOVE UKRAINE TO PREPAYMENT DUE TO DEBT: PUTIN

Reuters further adds that:

  • IN LETTER SEEN BY REUTERS, PUTIN SAYS THERE ARE RISKS UKRAINE WILL SIPHON OFF RUSSIAN GAS DESTINED FOR EUROPE
  • PUTIN SAYS IT IS NECESSARY TO PUMP 11.5 BCM OF GAS INTO UKRAINE GAS STORAGES TO SECURE UNINTERRUPTED RUSSIAN GAS TRANSIT TO EUROPE
  • PUTIN URGES EUROPE TO URGENTLY DISCUSS MEASURES TO STABILISE UKRAINE'S ECONOMY AND ENSURE DELIVERY AND TRANSIT OF RUSSIAN GAS

We are sure any new sanctions that Obama and his motley crew are coming up with have all of this in mind...

In sum, Russia is saying that Ukraine must build its own gas reserves to guarantee that there is enough for Europe, and Ukraine is saying no. Russia is thus implying that European gas supplies are at risk because Ukraine will take the gas supposedly traveling to Europe.

The math, as performed by Gazprom, via Bloomberg:

Ukraine needs ~18bcm of natgas in underground storage facilities for future winter consumption, to ensure uninterrupted transit of Russian fuel to Europe, Gazprom Deputy CEO Vitaliy Markelov says at govt meeting outside Moscow. Ukraine has 6.5bcm in storage now, ~0.65bcm are in Crimeanunderground storage facilities. Markelov adds that  11.5bcm needed before winter to cost $4b-$5b, if history is any example gas in storage before last winter was 19bcm, and currently has 7.2bcm in underground storage, according to Naftogaz Ukrainy.

So to paraphrase: Gazprom is saying it demands that Ukraine build up its gas holdings to assured it won't syphon off gas with a European destination, gas which will cost Ukraine up to $5 billion, money which Russia is now demand be paid up front. Or else Europe gets it.

* * *

Full Putin letter is below via Itar-Tass (highlights ours):

Ukraine’s economy in the past several months has been plummeting. Its industrial and construction sectors have also been declining sharply. Its budget deficit is mounting. The condition of its currency system is becoming more and more deplorable. The negative trade balance is accompanied by the flight of capital from the country. Ukraine’s economy is steadfastly heading towards a default, a halt in production and skyrocketing unemployment.

Russia and the EU member states are Ukraine’s major trading partners. Proceeding from this, at the Russia-EU Summit at the end of January, we came to an agreement with our European partners to hold consultations on the subject of developing Ukraine’s economy, bearing in mind the interests of Ukraine and our countries while forming integration alliances with Ukraine’s participation. However, all attempts on Russia’s part to begin real consultations failed to produce any results.

Instead of consultations, we hear appeals to lower contractual prices on Russian natural gas – prices which are allegedly of a “political” nature. One gets the impression that the European partners want to unilaterally blame Russia for the consequences of Ukraine’s economic crisis.

Right from day one of Ukraine’s existence as an independent state, Russia has supported the stability of the Ukrainian economy by supplying it with natural gas at cut-rate prices. In January 2009, with the participation of the then-premier Yulia Tymoshenko, a purchase-and-sale contract on supplying natural gas for the period of 2009-2019 was signed. The contract regulated questions concerning the delivery of and payment for the product, and it also provided guarantees for its uninterrupted transit through the territory of Ukraine. What is more, Russia has been fulfilling the contract according to the letter and spirit of the document. Incidentally, Ukrainian Minister of Fuel and Energy at that time was Yuriy Prodan, who today holds a similar post in Kiev’s government.

The total volume of natural gas delivered to Ukraine, as stipulated in the contract during the period of 2009-2014 (first quarter), stands at 147.2 billion cubic meters. Here, I would like to emphasize that the price formula that had been set down in the contract had NOT been altered since that moment. And Ukraine, right up till August 2013, made regular payments for the natural gas in accordance with that formula.

However, the fact that after signing that contract, Russia granted Ukraine a whole string of unprecedented privileges and discounts on the price of natural gas, is quite another matter. This applies to the discount stemming from the 2010 Kharkiv Agreement, which was provided as advance payment for the future lease payments for the presence of the (Russian) Black Sea Fleet after 2017. This also refers to discounts on the prices for natural gas purchased by Ukraine’s chemical companies. This also concerns the discount granted in December 2013 for the duration of three months due to the critical state of Ukraine’s economy. Beginning with 2009, the total sum of these discounts stands at 17 billion US dollars. To this, we should add another 18.4 billion US dollars incurred by the Ukrainian side as a minimal take-or-pay fine.

In this manner, during the past four years, Russia has been subsidizing Ukraine’s economy by offering slashed natural gas prices worth 35.4 billion US dollars. In addition, in December 2013, Russia granted Ukraine a loan of 3 billion US dollars. These very significant sums were directed towards maintaining the stability and creditability of the Ukrainian economy and preservation of jobs. No other country provided such support except Russia.

What about the European partners? Instead of offering Ukraine real support, there is talk about a declaration of intent. There are only promises that are not backed by any real actions. The European Union is using Ukraine’s economy as a source of raw foodstuffs, metal and mineral resources, and at the same time, as a market for selling its highly-processed ready-made commodities (machine engineering and chemicals), thereby creating a deficit in Ukraine’s trade balance amounting to more than 10 billion US dollars. This comes to almost two-thirds of Ukraine’s overall deficit for 2013.

To a large extent, the crisis in Ukraine’s economy has been precipitated by the unbalanced trade with the EU member states, and this, in turn has had a sharply negative impact on Ukraine’s fulfillment of its contractual obligations to pay for deliveries of natural gas supplied by Russia. Gazprom neither has intentions except for those stipulated in the 2009 contract nor plans to set any additional conditions. This also concerns the contractual price for natural gas, which is calculated in strict accordance with the agreed formula. However, Russia cannot and should not unilaterally bear the burden of supporting Ukraine’s economy by way of providing discounts and forgiving debts, and in fact, using these subsidies to cover Ukraine’s deficit in its trade with the EU member states.

The debt of NAK Naftogaz Ukraine for delivered gas has been growing monthly this year. In November-December 2013 this debt stood at 1.451,5 billion US dollars; in February 2014 it increased by a further 260.3 million and in March by another 526.1 million US dollars. Here I would like to draw your attention to the fact that in March there was still a discount price applied, i.e., 268.5 US dollars per 1,000 cubic meters of gas. And even at that price, Ukraine did not pay a single dollar.

In such conditions, in accordance with Articles 5.15, 5.8 and 5.3 of the contract, Gazprom is compelled to switch over to advance payment for gas delivery, and in the event of further violation of the conditions of payment, will completely or partially cease gas deliveries. In other words, only the volume of natural gas will be delivered to Ukraine as was paid for one month in advance of delivery.

Undoubtedly, this is an extreme measure. We fully realize that this increases the risk of siphoning off natural gas passing through Ukraine’s territory and heading to European consumers. We also realize that this may make it difficult for Ukraine to accumulate sufficient gas reserves for use in the autumn and winter period. In order to guarantee uninterrupted transit, it will be necessary, in the nearest future, to supply 11.5 billion cubic meters of gas that will be pumped into Ukraine’s underground storage facilities, and this will require a payment of about 5 billion US dollars.

However, the fact that our European partners have unilaterally withdrawn from the concerted efforts to resolve the Ukrainian crisis, and even from holding consultations with the Russian side, leaves Russia no alternative.

There can be only one way out of the situation that has developed. We believe it is vital to hold, without delay, consultations at the level of ministers of economics, finances and energy in order to work out concerted actions to stabilize Ukraine’s economy and to ensure delivery and transit of Russian natural gas in accordance with the terms and conditions set down in the contract. We must lose no time in beginning to coordinate concrete steps. It is towards this end that we appeal to our European partners.

It goes without saying that Russia is prepared to participate in the effort to stabilize and restore Ukraine’s economy. However, not in a unilateral way, but on equal conditions with our European partners. It is also essential to take into account the actual investments, contributions and expenditures that Russia has shouldered by itself alone for such a long time in supporting Ukraine. As we see it, only such an approach would be fair and balanced, and only such an approach can lead to success.

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pods's picture

He should finish off all his statements with "Check."

pods

Latina Lover's picture

The Ukrainians are guaranteed to siphon off gas and then blame the Russians.  They did it in 2006 and 2009.  This is why Putin needs Southstream to be completed, to reduce dependence on the Kiev Kriminals for gas transit.

Element's picture

Mostly Putin just needs the Europeans to wake up to themselves and see where this is going, and tell Washington to piss off from EU foreign policy affairs, then the EU itself will encourage Ukraine to be nice to Russia and behave itself, and pay its gas bill, ... or else both EU and the bear will beat them up.

Unfortunately the EU will be very slow waking-up to itself, as to where its interests really lay, over the next 25 years.

CrashisOptimistic's picture

Sounds pretty good, until you realize Ukraine HAS NO FUCKING MONEY.

Keyser's picture

Alas, time for Ukraine to go back to being a Russian satellite.  No soup for you!!!

Kirk2NCC1701's picture

They can always pay with wheat and cheap labor. Or ask the Fed to give them their gold back, and see how 'true' their friendship is with the US.

RaceToTheBottom's picture

Europe is laying low, knowing that if it hits the fan, the US will pay for it all.  Russia wants that too, as the US bailout to Ukraine and therefore Euro will go straight to Russia...

zaphod's picture

What the EU doesn't realize is the ones who will actually pay for this are themselves because the US will simply print whatever this costs, which shifts the real costs to debt holders and countries trapped in the petrodollar system. EU countries own a lot of US debt and are forced to by oil with dollars, this means that if the US prints to pay for something, its really the EU who pays.

The key is to not have dollar exposure, if you aren't invested in dollars then the US printing to pay for nonsense only indirectly effects you.

Kirk2NCC1701's picture

Hence: "Gas/Oil for Gold"

ps. "Seller may also accept part payment in machines and machine tools & parts."

pps. Print all the greenback confetti you want. We're not taking any.

Keyser's picture

The only thing the US has is printing presses. Vlad is going to stop taking US paper money in the near future because he knows it's worthless. 

GCT's picture

Spot on Element!  I think the EU will pay for it myself otherwise their grand plan of the Ukraine joining the EMU is done kaput!  He who controls the spice controls the universe.  Oh I meant natural gas!

Notice how the EU is keeping its mouth shut for now and during the now G7 conference.

BandGap's picture

His open honesty is quite refreshing, wouldn't you agree? Concise, and to the point as to what is required. He's not back-stabbing, he's pushing the knife in while looking you in the eye.

Sure wish the current US administration was as clear in their intentions.

HardAssets's picture

Paul Craig Roberts most recent interview on the overall situation including gold & Russia:

 

http://usawatchdog.com/gold-us-dollar-fight-to-the-death-paul-craig-robe...

 

NoDebt's picture

The current administration's feeble skills are no match for the true power of the dark side.  Now they will pay the price for their lack of vision.

db51's picture

The Current Administration IS the Dark Side.

Dewey Cheatum Howe's picture

They are just pawns of a darker hand. This country is being run by outsiders now. It should be plain as fucking day by now.

TBT or not TBT's picture

Obama is only half dark.   Ditto Jarret.    So who would they be referring to, if found to be gesturing at some group and saying in Yiddish, "they darker than us!" a la Mel Brooks?   Who?

Kirk2NCC1701's picture

Ah, that would explain why Bush Sr. is getting into the election funds (war chest) for the GOOD Ole Party, even though he's close to 'Factory Recall'. /s

Snidley Whipsnae's picture

NoDebt...

I think WE will pay the price for the lack of vision in DC and the Fed.

WE have been thrown under the bus in an attempt to save a few large banks.

pods's picture

Can't understand why people expect Russia to be a charity. I mean, just because the west doesn't pay off shit they owe to others in the west, it doesn't have to be that Russia behaves this way.

And this is not some conjured loan of banker funny money. This is payment for a commodity.

Big difference.

Wonder if Vlad is a fan of Goodfellas?

Had a bad week?  Fuck you, pay me!

pods

disabledvet's picture

demand for natural gas is deminimus in Ukraine...especially if you're gonna push all the women and children into Kiev...or further East.

Those gas pipelines are of enormous value...anything happens to those things and all of Europe has an instant energy crisis.

That would make the Netherlands the richest country in Europe over night actually.
Great news for Tesla.
Great news for fuel cell companies too.

Bad news for peace of course. In order to respond to the unprovoked attack all other Eastern States with "mushy borders" will have to secure those borders and start forward deploying.

I think Russia is terrified of going hungry and needs that massive food production of Ukraine. Of course so does the rest of Europe.

I do agree "still no comment from the White House."

Ignatius's picture

You display a remarkable ability to get nearly everything wrong.

 

gmrpeabody's picture

Down vote if you must..., but I didn't see too many mistakes there.

CrashisOptimistic's picture

He doesn't just have an opinion problem.  He has facts wrong over and over and over again -- like so:

 

-- Those gas pipelines are of enormous value...anything happens to those things and all of Europe has an instant energy crisis. --

 

No, it doesn't.  The UK doesn't use any Russian gas.  Germany uses Russain gas from the Nordstream pipeline that doesn't even pass through Ukraine.  Norway has its own.  The Dutch and Danes have their own.

FilthyHabits's picture

Or....

 

"Next time you think before you start a revolution in a country I control; Now - No lube for you..."

Rainman's picture

Do you hear that sound, Mr. Anderson ? It's the sound of inevitability.

Millivanilli's picture

He added, dense woods burn for a longer time than pine.

 

See furniture.  GO VLAD!

 

Meanwhile, Obama called costco to see if they could send a bulk shipment of small propane grill cannisters.  Leadership at work.

Oh regional Indian's picture

YOU, definitely did not sing tune that Milli!

_ConanTheLibertarian_'s picture

It's all or nothing now. Just keep on running. Maybe you can blame it on the rain.

Hulk's picture

You didn't sing that !!!

y3maxx's picture

..."and No more Beluga Caviar for You either." Now You will see Euro elite jump and pay up.

TheMeatTrapper's picture

Yellen to funnel funny money to ECB to funnel Euro's to Ukraine banks to funnel them to Russia and back to banks. 

Europe warm, Ukraine warm, future US taxpayers freeze.

HardAssets's picture

The tables have turned. First time I was in Russia was in the waning days of the USSR. You could buy tins of Russian buluga caviar from waiters and other folks for $ 5 US (then considered primo hard currency).  In the airport stores they were going for 10x that.

When this dollar fiat fraud finally shakes out, look out for the impact on prices in the US for imported goods.

Jack Burton's picture

I was there then too! You are 100% correct!

furgheddubouddit's picture

Putin was just trying to be nice.

Europe mistook his kindness for weakness and decided to create a mess in Ukraine.

This will probably go down in the history books as one of the biggest geopolitical misjudgements EVER.

They're about to find out what an angry Russia is capable of.

 

Kirk2NCC1701's picture

The ULTIMATE irony will ne when Western scientists and engineers (the smart guys with a useful skillset) start defecting TO Russia, to have jobs and freedoms.

They can keep their other "intellectuals" and army of "Service Providers": lawyers, accountants, PR people, pop-psychologists, hermaphrodites, pedophiles, troglodytes, political advisers and fluffers, bankers...

/ Retired starship captains and officers should still be useful, eh Mr. Chekhov? / [wink]

Nigh Eve's picture

Don't forget solar panels and wind turbines.

LawsofPhysics's picture

Who runs Bartertown?

It's a "debt is money" world folks where all that matters is your full "faith and credit".

In other words, no faith means no more credit motherfuckers...

Gaius Frakkin' Baltar's picture

There's a problem though... for whatever reason, Auntie is able to keep a lot of thugs at her disposal.

LawsofPhysics's picture

Well, one thing is for sure.  If no one in the world has any faith in you, then you better have the strength (i.e. military might) to acquire what you need by "other" means...

oh wait...

nevermind...

Winston Churchill's picture

We all know how wars on two fronts work out,let alone maybe four.

Can you spell  F U C K E D in Chinese or Russian.

Time to learn.

Oh regional Indian's picture

I suppose, by any rational human being's definition of it, the USA  pan-OPTI-conic military is stretched a little "thin".

Interesting, all the new FED three letter agencies need "experienced" goons for hire.

The social engineer's dream outcome is the common man's night-mare.

Neighhhh...

People here following the Cliven Bundy story in Nevada?

Any of you packing heat and going Nevadawards?

Whats up Libertarians?

Sick Simmer WHAT?

Ill winds.

 

Gaius Frakkin' Baltar's picture

Another time to act, another opportunity lost. Talk of revolution is always muted during showdowns with The Empire.

Bring on the collapse.