Russia fails to deliver prepaid gas to Ukraine

Ukraine’s Naftogaz is expected to rely on its storage gas for supply throughout the current cold spell after Russia’s Gazprom failed to deliver prepaid gas on Thursday.

Gazprom was due to make its first delivery of gas to Ukraine in more than two years following the settlement of a two-part dispute with Naftogaz, which came to an end on Wednesday evening (see separate story).

However, on Thursday a spokeswoman for Naftogaz said it had received no gas, despite making a pre-payment for volumes to be delivered in March. Instead, Gazprom returned the cash.

“Naftogaz is surprised to learn of Gazprom’s decision not to supply gas to Ukraine in March. Naftogaz has already provided full pre-payment for deliveries in line with an invoice received from Gazprom under the terms of the supply contract amended by the Stockholm Arbitral Tribunal,” Naftogaz said.

“The company regards Gazprom’s refusal to supply gas as a contractual violation and non-compliance with the tribunal’s award. Naftogaz will demand that Gazprom provides compensation for the damage caused by this violation.”

Gazprom acknowledged the receipt of the money for March to ICIS, but said: “As of today [Thursday], the additional agreement to the actual contract for gas supplies with Naftogaz, which is necessary for the supply start, has not yet been signed. So in this situation we, acting in good faith, have returned the amount received from Naftogaz in full. It is obvious that from 1 March, gas supplies to Naftogaz will not start”

Supply terms

Naftogaz is expected to off-take a minimum four billion cubic metres (bcm) of gas annually following a decision by the Stockholm arbitration tribunal.

Last month, the company which stopped off-taking Russian gas in 2015 and buying volumes from the EU instead, said it would resume Russian purchases from 1 March, limiting its European imports.

In the absence of Russian deliveries, Ukraine will have to rely on local production, stored gas and possibly ramp up European imports to cover demand.

For now, regional gas traders interviewed by ICIS said the country would most likely use the stored gas throughout the cold spell, which is expected to last for another week.

Storage withdrawals stood at 114 million cubic metres/day on Tuesday, while available stored volumes hover around 10bcm.

A Hungarian trader said it was unlikely Ukraine would buy any spot volumes from Hungary or neighbouring Slovakia and Poland immediately, noting that Ukrainian prices were cheaper than the Hungarian Thursday spot price, which settled at €28.80/MWh on the exchange CEEGEX.

“I do not think that Ukraine will buy spot volumes on these current prompt prices across the continent. I think they will make it through these days, relying on their vast storage stocks,” said a Budapest-based shipper.

Data published by the regional RBP capacity booking platform showed there was no interest on short-term capacity on the Ukrainian-Hungarian border for Thursday delivery.

Traders were not expecting an immediate impact on over-the-counter prices as Hungarian storage levels are at 21% of capacity, up by 15 percentage points year on year. A source said Slovakia may see some tightness because storage levels were below last year’s filling levels. aura.sabadus@icis.com and david.simon@icis.com