UKRAINE STILL TRYING

Ukrainian and Slovak officials Thursday said issues remain with a plan to give Ukraine a new delivery channel for natural gas from the European Union as the country seeks cheaper gas than that being offered by Russia.

The officials said they would continue three-way talks Friday and into the weekend in the hope of signing on Monday a memorandum of understanding on the deal.

Slovakia is offering Ukraine use of a secondary pipeline with annual capacity of 10 billion cubic meters. But reversing flows in the main Slovak pipeline to allow gas shipments to Ukraine creates legal issues between Slovakia and Russia's OAO Gazprom, said European Commissioner for Energy Günther Oettinger.

Ukraine's Minister of Energy Yuriy Prodan said legal hurdles can be overcome by negotiations and he reiterated that Ukraine is seeking reverse flows in the main pipeline rather than in the smaller secondary pipeline.

New Slovak gas flows, together with deliveries from Germany through Poland that were agreed to last week, and supplies from Hungary will still meet only part of Ukraine's demand.

Ukraine appears reluctant to sign on to supply deals with EU-based gas suppliers if the total possible volume fails to cover its needs. Such a situation would leave Ukraine still needing to buy gas from Gazprom, and it runs the risk of Gazprom demanding dangerously high prices for the gas Ukraine can't get in the West.

Ukraine is one of Gazprom's largest customers, second only to Germany. Its tensions with Russia led to a recent 81% increase in the price Gazprom charges Ukraine, more than what most EU customers pay.

Mr. Prodan said one of the options, in addition to securing use of Slovakia's secondary pipeline capacity, is reaching a negotiated solution with Gazprom regarding price.

"Ukraine is prepared to pay market prices for gas," Mr. Prodan said.

Gazprom is now charging Ukraine $485 per thousand cubic meters.

"This compares to around $387 that Gazprom charges its European customers on average," said Peter Kiernan, lead energy-sector analyst at the Economist Intelligence Unit in London.

Mr. Prodan said Ukraine won't be able to refill its reserves before next winter using only gas shipped from Poland, Hungary and Slovakia.

wsj.com