The spat between Ukraine and Russia over natural gas shipments is heading for the courts with multiple plaintiffs. The European Commission is now recommending that each European energy company with a contract to receive Russian natural gas sue both the Ukrainian company Naftohaz and the Russian Gazprom for the companies to resolve their disputes. The suits should also ask for compensation resulting from the shutdown of the natural gas pipeline to Europe from Russia, said the EC.
Natural gas from Russia has not moved through Ukraine and into Europe since the beginning of the year. The dispute started when Russia demanded payment of the US$2.4 billion debt Ukraine owed for previous natural gas shipments. By December 2008 Ukraine had paid about $1 billion of the debt and claimed it had an agreement to restructure the rest of the payments in January and February 2009.
Gazprom denies the restructuring agreement existed and demanded US$1.67 billion in back fees and $450 million in fines by the end of the year, or the gas would be turned off. Naftohaz made a payment of $1.5 billion Dec. 30, but because of the holidays the banks were not open and Gazprom did not receive its payment on time.
About the same time, Gazprom said it received a letter from Naftohaz stating that if the natural gas to Ukraine was not reinstated, it would begin confiscating gas bound for Europe in the pipelines passing through Ukraine. Naftohaz and the Ukrainian government deny any such letter was sent.
Besides the past due payments, Gazprom sought a price increase in the gas it delivers to Ukrainian customers. Naftohaz said it would pay US$201/thousand cubic meters, an increase of about US$21. Gazprom wanted US$250, saying Europe was paying US$500/thousand cubic meters.
The two sides could not reach an agreement on the new price, and Gazprom made good on its threat to cut the flow of gas to Ukrainian customers. Gazprom said it would continue to service its European customers through the Ukrainian pipelines, but the cost of servicing the pipeline and flow of the natural gas was in dispute. Ukraine wanted more than Russia said was necessary. At the same time, Gazprom accused the Ukrainians of stealing gas bound for Europe. In the end, Russia turned off the tap.
Under pressure from the European Community, Russia and Ukraine agreed to resume gas operations, with international observers set up along the way to ensure no gas was siphoned off along the way. By Jan. 11 all parties had signed the agreement, but the Ukrainian government added a handwritten note next to its signature referring to an addendum that stated no gas was stolen by Ukrainians and other technical details. The Russians said the addendum was not part of the agreement and refused to honor it. Eventually, the Ukrainians presented the addendum as a separate document.
The Russians claim they tried to send a test flow of natural gas through the pipeline, but the Ukrainians had not opened their end of the pipe. The Ukrainians claim the Russians did not send enough natural gas to maintain the proper pressure in the pipeline.
As of Jan. 13, the Ukrainians have not opened the line to Europe. Gazprom used the move to declare a force majeure. With no gas flowing from Russia to Europe or into Ukraine, homes are denied heating fuel and factories the necessary inputs for production. Bulgarian fertilizer plants closed two weeks ago. Last week OPZ and other major ammonia and urea plants also either extended already planned shutdowns or closed down because of lack of natural gas. Asian sources report that most of the urea and ammonia producers have also declared a force majeure.
The resulting prospective lack of ammonia and urea from Black Sea and Baltic producers is beginning to have an impact on prices.