Germanys RWE to Supply Gas to CrisisHit Ukraine

Germany's RWE to Supply Gas to Crisis-Hit Ukraine

RWE, Germany's second-biggest power supplier, says it will start gas deliveries to Ukraine as Russia threatens to cut off supplies to Kiev.

FRANKFURT, Germany -- RWE (IW 1000/58), Germany's second-biggest power supplier, said on Tuesday it will start gas deliveries to Ukraine as Russia threatens to cut off supplies to Kiev.

"RWE -- via its trading subsidiary RWE Supply & Trading -- is the first European supplier to commence gas deliveries to the Ukraine in 2014," the German group said in a statement.

The deliveries are part of an existing five-year framework agreement signed in May 2012 that allows RWE to ship up 10 billion cubic meters of natural gas a year to Ukraine, but the gas supplies must be agreed on annually.

Last year, RWE supplied about one billion cubic meters of gas to Ukraine.

The deliveries, to be transported to Ukraine via Poland, are known as "reverse flows" because normally the gas comes from Russia and is transported in the other direction to Europe via Ukraine.

In its statement, RWE said it is immediately restarting deliveries to Naftogaz, Ukraine's state-owned company, with gas from its pan-European portfolio.

The statement did not specify the volumes of gas, but RWE said the deliveries would be based on "European wholesale price levels including delivery costs to the Ukraine."

Earlier this month, Russia's Gazprom (IW 1000/16) announced it was raising the price of gas exports to Ukraine by more than a third, scrapping a discount amid soaring political tensions between the two countries.

Given the price rise and concerns that Russia will cut natural gas to Ukraine, Kiev has been trying to seal agreements with its western neighbors on gas deliveries.

RWE said that "further significant volumes could be delivered to Ukraine if various transport restrictions at the Slovakian/Ukrainian border are politically and technically resolved within the next weeks or months."

Slovakia, as EU member and neighbour to Ukraine, is strategically located to facilitate the pumping of gas to Ukraine from western Europe.

But Slovak Prime Minister Robert Fico said last week he wanted the European Union to guarantee that Ukraine will pay should Slovakia facilitate reverse gas flow from Europe.

Gazprom Watchful

"It's clear that Ukraine is unable to pay its bills," Fico told reporters in Bratislava. "Only a third party, like the European Union and European Commission, can guarantee that Slovakia will get paid if we help Ukraine."

Slovakia is loath to upset Russia, which supplies almost all of its gas. Bratislava also profits from transit fees from Gazprom, which uses the country's pipelines to supply gas to Europe.

On Tuesday, the Slovak economy minister, Ukrainian energy minister and European Commission representatives held talks at Slovakia's Velke Kapusany transit point near the Ukraine border.

Ukraine requested full reverse flow from that pipeline, but Slovakia said that would violate its deal with Gazprom. Instead it offered the use of its smaller-capacity Vojany pipeline, which Ukraine rejected, according to Slovak economy ministry spokesman Stanislav Jurikovic.

The talks would continue on April 28, the spokesman said.

Ukraine now has to pay $485 dollars for 1,000 cubic meters of gas, the highest rate paid by any of Gazprom's European clients.

Russia says Ukraine now owes it $2.2 billion (1.6 billion euros) for natural gas supplies, and Gazprom has demanded that Kiev take immediate measures to settle the debt.

Russian President Vladimir Putin has also sent a letter to EU leaders expressing "extreme concern" over the debt and warning that supplies to Europe may be affected.

Gazprom is taking a dim view of the "reverse flow" solution.

In a recent interview with Russian television, Gazprom chief Alexei Miller said the European companies involved "should examine very closely the legality of this type of operation."

Copyright Agence France-Presse, 2014

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