Russia-Ukraine Spat Adds Stress to EU Gas Market Hit by Cold

(Bloomberg) -- Even after sending record volumes of natural gas to Europe to help the region deal with a deadly cold snap, Russia kept the region's gas traders on edge by escalating a dispute with Ukraine.

Gazprom PJSC said Friday “it's forced” to start a court procedure to cancel both gas supply and transit contracts with its Kiev-based counterpart that expire at the end of 2019 because it disagrees with this week's arbitration ruling on a $2.6 billion debt to NAK Naftogaz Ukrainy. Shortly after Gazprom said it started March with a record daily supply to freezing Europe.

“The arbitration procedures might take months or even years to complete and Russia isn't interested in stopping supplies to Europe because it's about revenue,” said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. in London. “Yet, it's not a great timing to announce the plan.” 

Gazprom shipped some $38 billion of gas to its most lucrative markets in Europe last year, almost half of which was delivered through Ukrainian pipeline network. The two parties have previously had disputes, the biggest of which in 2009 led to shortages in some European nations.

The court battle between Gazprom and Naftogaz lasted almost four years and the EU called for the companies to compromise as gas transit through Ukraine is a linchpin in the 28-nation block's energy security. Naftogaz, which Thursday called for talks mediated by the EU, a practice used in similar disputes three years ago, said it hasn't yet received any documents from Gazprom.

There's a lot of politics in everything related to Gazprom and Ukraine, Sikorski said. The Moscow-based company is also preparing Europe for two planned pipelines, Nord Stream 2 under the Baltic Sea and Turkish Stream under the Black Sea, both of which Gazprom seeks to build by the end of next year, he said.

See also: Russia and Ukraine Argue About Gas Supply as Freeze Grips Europe

Gazprom and Russia's Energy Ministry declined to elaborate on Russia's plans for transit if the Ukrainian contract is canceled. 

“It is important that both Russia and Ukraine reaffirm their respective positions of a reliable supplier and transit country of gas, as was the case over the past years,” EU Commission Vice-President Maros Sefcovic said Friday in a statement.

--With assistance from Volodymyr Verbyany

To contact the reporter on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net.

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Rob Verdonck, Andrew Reierson

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