Russia Moves to Scrap Accords to Send Gas to Ukraine

MOSCOW—Russia is tearing up its contracts to supply Ukraine with natural gas, sparking another stand-off between Moscow and Kiev and raising fears of new gas supply shortages across Europe during the winter.

Ukraine on Saturday accused Russia of undermining its role as a gas supplier and warned that Moscow could use the massive amounts of gas it pipes through Ukraine to Europe as a political weapon.

Tensions are high amid a conflict in eastern Ukraine between government forces and pro-Russian separatists that Kiev and the West says are controlled by Russia and include Russian army forces. Russia says its regular forces aren’t in eastern Ukraine.

Russian energy officials said the dispute was commercial and reflected its disagreement with an arbitration decision that just went in Ukraine’s favor.

The situation kindled memories of previous Moscow-Kiev gas fights in 2006 and 2009, which left Europe with shortages. But this time could play out differently, as Moscow no longer holds the same stranglehold on European energy supplies as it once did.

Andriy Kobolyev, the head of Ukraine’s state gas company, Naftogaz, said Ukraine ‘did everything possible to make sure that the artificial crisis Russia was trying to create would not happen.’ Photo: eric piermont/Agence France-Presse/Getty Images

Ukraine hasn’t received Russian gas for more than two years but was expecting the shipments to resume this month. When Gazprom announced it wouldn’t honor its contracts, Ukraine was able to scramble up new contracts for gas supplies by Saturday morning from Poland, Slovakia and Hungary, reported Interfax, a Russian news service.

Meanwhile, all Russian gas bound for Europe across Ukraine continued to flow uninterrupted. Gazprom, which is heavily reliant on exports to Europe and is trying to expand them, only cut off contracts with Ukraine.

“For Europe the risk is gone,” said Andriy Kobolyev, the head of Ukraine’s state gas company, Naftogaz, in an interview. “We did everything possible to make sure that the artificial crisis Russia was trying to create would not happen.”

Still, the actions undercut the image Russia has tried to cultivate as a reliable supplier and sparked fears of escalation across Europe in the midst of cold stretch.

European Commission Vice President Maros Sefcovic warned Friday that the situation raised “concerns not only for the direct supply of natural gas to Ukraine but possibly also for the transit of gas to the EU.” He also said he would be in contact with Gazprom and Naftogaz to look for a negotiated settlement.

Mr. Kobolyev said Russia cut pipeline pressure for transit supplies to Europe by as much as 20%. The lack of pressure forced Ukraine to spend more energy to keep the gas flowing to Europe since the pressure wasn’t coming from the Russian side.

“The decision to fail on the supply contract wasn’t made in Gazprom, I believe it was made in the Kremlin,” Mr. Kobolyev said.

The actions come on the heels of a Stockholm arbitration court decision earlier this week that forced Gazprom to pay $2.5 billion to Naftogaz. The arbitration case had been initiated between the two companies in June 2014, at the height of the crisis between Moscow and Kiev.

The decision paved the way for Ukraine to restart imports of Russian gas from March based on an existing contract.

Gazprom, however, said the arbitration decision had been one sided and decided to terminate the contract.

“We are definitely against solving the problems of Ukrainian economy at our expense,” said PAO Gazprom Chairman Alexey Miller in a statement. “Under such a situation, the continuation of contracts for Gazprom is economically inexpedient and unprofitable.”

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