Gazprom Threatens Gas Supplies if European Union Sells Gas to Ukraine

Gazprom Threatens Gas Supplies if European Union Sells Gas to Ukraine

Russian gas company Gazprom told the European Union its gas supplies will be in jeopardy if it chooses to sell gas back to Ukraine. The state-owned company cut off the gas to Kiev in mid-June.

“There is no physical reverse flow,” said CEO Alexei Miller, according to The Moscow Times. “But if we detect a reverse flow on gas-measuring stations in Europe, we may impose restrictions.”

Gazprom and Russia have been using gas as a political tool since Ukraine ousted Russia-backed President Viktor Yanukovych on February 22. The EU promised Ukraine it would help if Russia shut off the gas. Ukraine signed a reverse flow agreement with Slovakia in April to export 2 billion cubic meters. Kiev later asked the EU Commission to bump the amount to 30 billion cubic meters.

Uralsib, a Russian financial corporation, said Gazprom could lose over $3 billion in 2016 if the EU decided to sell back gas to Ukraine. The Times reports:

Uralsib estimates that Gazprom’s 2016 EBITDA — or earnings before interest, taxes, depreciation and amortization — would fall by $3 billion, or 6 percent, in 2016 if Ukraine and the EU agreed to the tactic. Gazprom would end up selling higher volumes of gas to the EU, where prices range from $360 to $380 per thousand cubic meters and gas is subject to a 30 percent export duty, rather than Ukraine’s price of $385, where there is no export duty and transportation costs are lower.

The EU does not demand much gas during the summer, and Ukraine wants to take advantage of the low demand to fill its supplies before winter. Kiev imports about 28 billion cubic meters every year, and the 30 billion cubic meters would be more than enough for Ukraine. The EU said the Slovakia reversal “would be in direct violation of an agreement between Slovakia’s Eurostream and Gazprom Export.” But Ukraine said the reversal is in agreement with the EU’s Third Energy Package, “which, among other things, stipulates equal access to pipelines for gas suppliers.” Europe receives over 30% of its gas from Gazprom, and half of the pipelines flow through Ukraine.

Gazprom wants to finish the South Stream pipeline, which will flow gas to Europe and bypass Ukraine altogether.

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