UKRAINE IS REDUNDANT

Russia's Gazprom has shrugged off a Ukrainian proposal to bring in Western companies to invest in the natural gas pipeline which crosses the country, saying other transit routes bypassing Ukraine still promised to make the pipeline redundant.

Gazprom's comments came as Ukraine and Russia, at odds after Russia annexed Ukraine's Crimea region in March, remained locked in a multi-billion dollar dispute over unpaid gas bills.

The Ukraine idea on pipeline investment is part of a response to Moscow's decision to temporarily cut gas supplies on June 16, following Kiev's failure to pay some of its gas debts.

Ukraine wants to share necessary investment in the ageing pipelines as it needs the transit fees it generates for its strained budget. But Gazprom says it has alternatives that mean it won't be dependent on the Ukraine link.

"It won't anyhow affect us. But let's not forget that its (Ukraine pipeline's system) age is more than 35 years with no needed investments done," Gazprom Deputy Chairman Alexander Medvedev told reporters on Friday.

Future gas talks between Moscow and Kiev could also be complicated after the EU signed a trade pact with Ukraine and warned it could impose more sanctions on Russia.

A couple of years back Gazprom has wanted to get at least partial control over Ukraine's gas pipeline to oversee its gas flows to Europe, but failed to agree with Kiev. This time, Russia was not invited by the pro-Western government to consider joining a possible investment consortium.

Alexei Miller, Gazprom CEO, told a briefing on Friday the company had no interest in the project.

Gazprom earlier said its gas flows to Europe via Ukraine increased on Friday despite the standoff.

Gazprom had cut gas supplies to Ukraine in June after several rounds of fruitless talks between Russia, Ukraine and the European Commission. Russia subsequently said it would not revise the price until Kiev pays $1.95 billion to cover part of its debts, raising the possibility of gas flow cuts to Europe.

Miller told a briefing Gazprom had started pumping gas into European storages, expecting to pump over 5 billion cubic metres. Yet this would not be enough to cover a significant spike in demand if there were stoppages.

Gazprom shipped 162 bcm to Europe last year.

TIME FOR TALKS

Russia used to ship around three-quarters of its gas exports to Europe via Ukraine. But the proportion has declined after it launched the Nord Stream pipeline, with an annual capacity of 55 bcm via the Baltic Sea directly to Germany in 2011.

Gazprom plans a further pipeline, South Stream, to ship gas to Europe across the Black Sea in 2015, with a view to increasing its annual capacity to 63 bcm by 2018-2019, despite opposition from the EU, which is unhappy that the project would not be open to other suppliers.

"After we build South Stream, taking into account Nord Stream and other routes, there will be almost no need left to use Ukraine's gas pipeline system," Medvedev said.

Unlike in previous gas pricing disputes, which led to cuts in Russian gas supplies to Europe in the winters of 2006 and 2009, the latest row has flared up in summer, when gas demand is at a seasonal low. Analysts say the talks may continue for a few months before seasonal demand rises.

"Gazprom will stick to its position that Ukraine has to pay the debt first. This is non-negotiable for the Russian company," Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, said.

According to Ukrainian state energy firm Naftogaz, Ukraine has stored 14 bcm of natural gas underground. It says its consumption is less at the moment than it produces and receives from Europe.

This year, Ukraine expects to get between 5 and 6 bcm from Europe in so-called reverse flows. Both Gazprom and Naftogaz have appealed to an international arbitration court to settle their dispute.

Gazprom's Miller said Gazprom may cut gas supplies to European companies which reverse gas to Ukraine.

Ukraine wants to return to a discount price of $268.5 per 1,000 cubic metres, almost doubled by Moscow when pro-Russian Ukrainian President Viktor Yanukovich fled after street clashes.

Moscow is ready to offer a discount to $385 per 1,000 cubic metres by scrapping export duty, compared with the $387 Gazprom charged its European clients on average last year.

reuters.com