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Ukraine Pays Russia's Gazprom On Time Again, But Both Looking For New Partners
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Ukraine’s state owned oil and gas company, Naftogaz, is paying its bills on time. The company recently dished out another $70 million for its January gas deliveries from Russia’s Gazprom, the world’s largest natural gas company. This is good news for Gazprom, which has been battling Naftogaz over late payments for the past several months.
Naftogaz has been up to date since December, however, when it paid $150 million as a security and good faith deposit for its January deliveries.
Naftogaz imports primarily from Gazprom, both for local demand and for export to Europe. These two oil firms have a notoriously bad romance. Gazprom has shut the spigot on Naftogaz numerous times, including this year. Despite the drama, these two always eventually end up together. But a series of new business dealings signals these two have come to the autumn of their years together.
Gazprom gets paid again. But its relationship with Naftogaz, while showing some signs of improvement these days, is on the wane. Both companies are looking for alternative partners. And while they will likely always do business together, Gazprom might be better off finding new friends in Turkey.
Russia and Ukraine have seen their better days.
Ukraine’s government has turned towards the West following last February’s ousting of pro-Russia president Viktor Yanukovych in favor of pro-Western leadership. Civil unrest has plagued Ukraine since the so-called Euromaiden protests of late 2013 and early 2014. The political quagmire was centered on Ukraine’s relationship with Gazprom. In 2013, Yanukovych struck a deal with the Russians to receive natural gas at a steep discount, roughly 40% off the market rate, in exchange for a promise to move closer politically and economically to Russia.
A significant number of Ukrainians saw this as a compromise to national sovereignty. Protests erupted in Kiev over the deal, which had the all-important caveat that Kiev stand down from courting the E.U. about defacto membership. Many Ukrainians felt their future was more entwined with the E.U. than with Russia. Protesters won. And Yanukovych was forced out by extra-legal means in February 2014.
The new government, led by Washington favorite, Arseniy Yatsenyuk, was immediately seen as anti-Russian by ethnic Russians living in parts of eastern and southeast Ukraine. The civil authorities in the autonomous region of Crimea felt threatened enough by Yatsenyuk’s political leanings that it voted to secede and join Russia. The annexation of Crimea occurred officially on March 17 following a vote in the Russian parliament. The annexation led to a string of sanctions that, four months later, dropped a heavy hammer on the heads of shareholders of Gazprom and other Russian companies. Gazprom has been banned from importing American and European technologies and equipment used in oil and gas drilling. Like all Russian companies, it was also banned from long term financing. The Russian economy slowed as a result of deteriorating investor sentiment caused by the sanctions, which got their start not too long ago from the Gazprom. Falling oil prices have added injury to the West’s insult. Once again, Russia feels victimized by the old capitalist economies. Its flagship enterprise, Gazprom, is forced to find new
Ukraine Pays Russia's Gazprom On Time Again, But Both Looking For New Partners
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For Naftogaz, Gazprom punished Ukraine’s Western tilt by voiding its old gas price agreement and charging only slightly below market rate.
Still, this week’s payment is a good sign. Gazprom’s relationship with Naftogaz is important. It is a good barometer of Moscow-Kiev relations. Are they talking? Are they not? Are they honoring their promises? That Naftogaz is paying on time suggests that it is either willing to return to normal relations, and fast, or trying to get Gazprom off its back while replacing it with a competitor.
France’s GDF Suez and Norway’s Statoil stepped into the gap left by Russia when Gazprom cut supplies during their last payment dispute in June. Their price is supposedly lower than Gazprom by about 10%, and it doesn’t come with an upfront payment clause.
For its part, Gazprom has also been trying to diversify. Their South Stream pipeline deal with the E.U. was canceled because of sanctions. Now the company is chit-chatting over building a similar transportation line to Turkey.
Turkey gets Russian gas through the Blue Stream pipeline running under the Black Sea, and from the Trans-Balkan pipeline. Neither go through Ukraine.
On December 1, Gazprom and Turkish pipeline company Botas signed a memorandum of understanding on the construction of a new Black Sea pipeline to Turkey with an annual capacity of 63 million cubic meters. According to Gazprom CEO Alexey Miller, a total of 14 billion cubic meters a year will be supplied to Turkey while the rest will be pumped to a hub on the Turkish-Greek border to be delivered to Gazprom’s customers in southern Europe. Such a move eventually takes Ukraine’s Naftogaz out of the equation as the lead transit hub for Gazprom gas bound for the E.U
