Russia Rejects Ukraine's Gas Deal; 2am Eastern Deadline Looms

Tyler Durden's picture

As suspected given the huge distance between the bid and offer, the EU-brokered Ukraine-Russia gas deal has failed:

  • GAZPROM CEO MILLER LEAVES SITE OF UKRAINE GAS TALKS
  • GAZPROM SAYS TALKS ENDED, DEADLINE WON'T CHANGE (negotiate that!)
  • RUSSIA REJECTED EU'S GAS PROPOSAL: OETTINGER
  • UKRAINE WAS READY TO ACCEPT EU PROPOSAL ($300-$385): PRODAN (lol!!)

Gazprom seeks $1.95bn from Ukraine for past shipments of gas by the 10am Moscow time deadline (2amET) and will continue to seek upfront payments for any further shipments.

As Reuters notes,

Russia and Ukraine failed to resolve a gas pricing dispute at talks and a 0600 GMT deadline for Ukraine to pay $1.95 billion in gas debts still stands, a spokesman for Russian natural gas producer Gazprom said on Monday. Spokesman Sergei Kupriyanov said after talks in Kiev that Russia would switch to an advance payment system if it did not receive the money, meaning Moscow could cut off gas supplies to Ukraine.

Cutting supplies could disrupt the gas flow to the European Union.

"The talks in Kiev ... finished around 2:30 a.m. Moscow time (2230 GMT on Sunday). The Russian side is expecting payment of the accumulated gas debt of $1.951 billion before 10 a.m. (0600 GMT) on June 16," Kupriyanov said.

"If the funds are not paid, gas supplies will, as was announced earlier, be switched to a pre-payment system."

Russia and Ukraine disagree how much Kiev should pay for the natural gas it receives from Russia.

European Energy Commissioner Guenther Oettinger told reporters in Kiev that he had made a compromise proposal during talks which began late on Sunday but Moscow had declined the offer. This follows after weeks of Oettinger assuring anyone who cares to listen to him that a deal was assured. Apparently not.

The lack of a deal is hardly surprising given the distance between bid and offer (as Bloomberg notes),

EU proposed gas price range of about $300-$385/kcm, Naftogaz CEO Kobolyev says at news conference in Kiev.

 

Gazprom sought about $500/kcm; Ukraine won’t pay $500/kcm: Kobolyev

 

Ukraine was ready to accept EU proposal: Ukraine Energy Minister Proda

It seems the market had begun to expect this failure...

OAO Gazprom sank to a one-week low in New York on concern Ukraine won’t pay the Russian producer money it owes for natural gas supplies by today’s deadline, potentially disrupting shipments through the country.

 

...

 

“There is a risk,” Mattias Westman, who oversees about $3.6 billion in Russian assets as chief executive officer at Prosperity Capital in London, said by phone on June 13. “Investors are focusing on the outlook for Gazprom’s revenue if there are disruptions of gas supplies to Europe.”

But now the next phase of the Russia vs Ukraine/Europe escalation commences, as Russia truly flexes its commodity muscles.