Gas compromise between Russia, Ukraine, EU

After announcing last month that it finally reached a preliminary compromise for gas supplies to Ukraine, Russia’s energy group Gazprom said it will start new deliveries following the impending payment by Ukraine’s Naftogaz of $500 million following a request for 2 billion cubic meters (bcm) of gas this month. Though Gazprom’s Chairman Alexey Miller said in April 2015 that, given that Ukraine’s economy deeply deteriorated, his group “gave up its intent to penalize the Ukrainian company this time for its failure to fulfill the ‘take-or-pay’ condition under the 2009 contract,” three reasons could explain the improvement in relations between Gazprom and Naftogaz.

First, the drop in commodities prices – Russian Federation’s main income stream – may have led Gazprom to re-consider its stance. Besides this winter’s price will be around $232 compared to last year’s (under) $385/1000m3. Second, given that Naftogaz’s financing is mostly allocated by the European Union (EU) in accordance with the binding “winter package” – October 2015 to March 2016 – agreed last month, this is guaranteed good money for Gazprom. Third, from a larger perspective, Russia’s political leadership may have an interest in easing the situation in Ukraine a bit as it is starting military operations in Syria.