Gazprom Hikes Ukraine Gas Prices by over 40%

Russian energy giant Gazprom said it will increase the price of gas exports to Ukraine by more than 40%, scrapping a previous discount and echoing earlier price hikes imposed in 2006 and 2009.

Ukraine will now pay a price of US$385.5 per 1,000 cubic metres of gas, said Gazprom’s chief executive (CEO), Alexei Miller, against a previous price of US$268.5 per 1,000 cubic metres agreed in December. “The discount will no longer apply,” Miller announced. “This is due to the inability of the Ukrainian side to pay for debts from 2013 and realise full payments for current deliveries.”

The previous discount was subject to quarterly review and was part of a financial lifeline Russia’s president Vladimir Putin offered to former Ukrainian president Viktor Yanukovich, in return for scrapping a pact with the European Union (EU) in favour of closer ties with Moscow. His decision triggered three months of protests, forcing Yanukovich to flee to Russia in February.

Miller also said that Gazprom would in future be paying 10% more to Ukraine for transit of Russian gas to Europe through Ukraine.

Commenting on the announcement, Michael Bradshaw, a professor of global energy at the UK’s Warwick Business School, who researches the Russian energy industry as well as energy security in Europe, said that it came as ‘no surprise’.

“The real problem is Ukraine’s inability to pay its gas bill; this was behind previous gas crises in 2006 and 2009,” he added. “The West will need to provide the Ukrainian government with financial support to pay its debt and finance future purchases to avoid providing Russia with the pretext for cutting off the gas.

“However, I do not think that Gazprom or the Kremlin want to do that. They will know that gas reserves in Europe are high and although some parts of southern Europe are still vulnerable, less gas flows through Ukraine than was the case in the past and gas demand is depressed in Europe.

“Longer-term the EU needs to assist Ukraine in getting its energy system in order, this means closer integration in the EU gas pipeline system, increases in domestic gas prices, development of indigenous gas production – particularly shale gas – and demand reduction and energy efficiency measures.”

Ukraine agreed last week to raise domestic gas consumer prices by up to 50% in order to meet a key loan condition from the International Monetary Fund (IMF).

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