Moscow insists on payment up front
Late last week, the EU, Russia and Ukraine struck a long awaited deal to supply Russian gas to Ukraine and Europe this winter.
“EU officials said both Russia and Ukraine had bargained hard for commitments from the Western bloc,” according to Reuters, “with Moscow looking for EU cash to help Ukraine pay off debts to Gazprom (ticker: GAZP) and the Kiev authorities anxious to get a deal that they could present to domestic voters as not overpaying for vital Russian supplies.”
Moscow said Ukraine would pay $378 per 1,000 cubic meters to the end of 2014 and $365 in the first quarter of 2015 and that Kiev’s debt of $1.45 billion would be paid immediately and a further $1.65 billion paid by the end of the year. Ukraine’s Naftogaz company has set aside $3.1 billion in a special escrow account to pay the debt, Reuters reported.
Russia provides around a third of the European Union’s natural gas, roughly half of which is pumped via Ukraine. Ukraine gets about half of its own natural gas from Russia each winter. Natural gas sales generate about 20% of Russia’s budget annually. Russian Energy Minister Alexander Novak insisted Ukraine pay up front for new deliveries.
Two major pipeline systems carry Russian gas through Ukraine to Western Europe—the Bratstvo (Brotherhood) and Soyuz (Union) pipelines, according to the EIA. The Bratstvo pipeline crosses from Ukraine to Slovakia and splits in two to supply northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and supplies additional volumes to central and northern Europe. The Trans-Balkan Pipeline delivers Russian natural gas to the Balkan countries and Turkey through Ukraine.
In the past, as much as 80% of Russian natural gas exports to Europe transited Ukraine. This number has fallen to 50%-60% since the Nord Stream pipeline, a direct link between Russia and Germany under the Baltic Sea, came online in 2011, according to EIA data.
EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013, according to EIA data. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine’s pipeline network, based on data reported by Gazprom and Eastern Bloc Energy.
The 400,000 BOPD southern leg of the Druzhba oil pipeline transports Russian crude oil through Ukraine to supply most of the oil consumed by Slovakia, Hungary, Czech Republic, and Bosnia. In 2013, about 300,000 BOPD of throughput transited the pipeline. Russian crude oil and petroleum products also transit Ukraine by rail for export out of Ukrainian ports. More than half of the Ukraine’s primary energy supply comes from its uranium and coal resources, with consumption fueled by natural gas (about 40%), coal (about 28%), and nuclear (about 18%), EIA figures show.
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