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Published: Tuesday May 13, 2014 MYT 7:10:02 PM
Updated: Tuesday May 13, 2014 MYT 7:11:31 PM

Russia's Gazprom demands Ukraine pay $1.66 billion for June gas

MOSCOW (Reuters) - Russia's Gazprom demanded a $1.66 billion (986 million pounds) pre-payment from Ukraine for June gas deliveries on Tuesday, saying the neighbouring country had only half its requirements in storage to ensure a trouble-free winter.

Citing a preliminary bill, Moscow pressed ahead with its demand that Ukraine pay for June deliveries early next month, heightening a dispute over price that is pushing the two countries closer to another gas war that could cut supplies.

Previous disputes over gas have left Europe, which gets around a third of its gas needs from Russia, with limited supplies at the height of winter, spurring it to look for alternative producers. But so far it has been unable to break its dependence on Moscow.

State-controlled Gazprom said the bill was based on Ukraine taking up a contractual amount of 114 million cubic metres per day, or 3.4 billion cubic metres for the month in total.

"Taking into account non-working days, Naftogaz should pay this bill by June 2 and, starting from June 3, the company will be getting gas ... only at the volumes paid for," spokesman Sergei Kupriyanov said in a statement.

This means that Ukraine needs to pay $1.658 billion for June's gas deliveries based on a price of $485 per 1,000 cubic metres, he added.

Naftogaz confirmed it had received the bill but declined to comment further.

Ukraine wants to change the conditions of a 2009 contract that locked Kiev into buying a set volume, whether it needs it or not, at $485 per 1,000 cubic metres - the highest price paid by any client in Europe. Moscow dropped the price to $268.5 after then-President Viktor Yanukovich turned his back on a trade and association agreement with the European Union last year but reinstated the original price after Yanukovich was ousted in February.

Kiev has so far refused to pay the higher price, saying gas is being used as a political tool by Moscow to punish Ukraine's new leaders for moving closer to the European Union.

In an interview with Reuters last week, Ukrainian Energy Minister Yuri Prodan called $268.5 per 1,000 cubic metres "a market and a fair" price for gas, which Kiev is able to pay.

He said Kiev would take Gazprom to court if the two sides failed to agree on price by May 28, a procedure used by Gazprom's other clients in Europe to win price cuts over the last couple of years.

"Though Gazprom has many times threatened to introduce pre-payment to Ukraine, this latest announcement will likely further amplify the risk of possible trouble with stable gas transit to Europe," Alfa Bank said in a note on Tuesday.

A LACK OF GAS IN STORAGE

Vitaly Markelov, a Gazprom deputy chief executive, said earlier on Tuesday that Ukraine lacked around half of the gas needed in storage to avoid problems in winter.

"According to our colleagues (in Ukraine), 9 bcm is in storage. To pass through autumn and winter periods normally, we estimate that (Ukraine) needs around 18.5 bcm (in total)," Markelov told a news conference.

Twice in the past decade, price disputes have led to reduced supplies of Russian gas to European clients via Ukraine, a conduit for about half the gas Europe imports from Russia.

Ukraine received the first tranche of about $3.2 billion from a $17 billion two-year aid programme from the International Monetary Fund last week, which Moscow hopes Kiev will use to cover gas debts.

Anatoly Yanovsky, Russia's deputy energy minister, said on Monday Moscow would be ready to continue talks with Kiev on gas only after Kiev paid off its debt.

A Gazprom representative said on Tuesday gas flows to Europe via Ukraine remained stable.

The worst East-West standoff since the Cold War over Ukraine has spurred efforts to try to reduce Russia and Europe's energy interdependence. Europe is scrambling to diversify supplies and, faced with Western sanctions, President Vladimir Putin has looked to the east for new export markets.

Putin plans to visit China on May 20 and Gazprom hopes to sign a gas contract after years of talks to supply Beijing with 38 bcm per year - volumes comparable to deliveries to Germany, its biggest gas client.

Yanovsky said the gas contract was "98 percent" ready. Sources told Reuters last month Gazprom was hoping China would agree a price of $10-$11 per mmBtu (million British thermal units).

China is believed to pay $9 per mmBtu to Turkmenistan, the Central Asian state that beat Gazprom to the Chinese market.

Asked if Gazprom was considering inviting Chinese companies to develop its fields, an offer which could help spur moves to seal the contract, Markelov said: "We are not looking at such cooperation."

(Reporting by Katya Golubkova and Denis Pinchuk, additional reporting by Pavel Politiyuk in Kiev; editing by Elizabeth Piper and David Evans)

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