Norway’s Statoil in New Agreement with Ukraine

Published at 09:00AM - 07/10/14

Ukraine’s government has announced that it has agreed a deal for gas delivery provision with Statoil, the Norwegian state-owned energy giant. The deal has been set up to allow the Ukraine to avoid the ongoing consequences of a cessation in Russian gas supplies.

Russia cut off its supplies of gas in June to Ukraine after a dispute over prices. Russia has always been Ukraine’s primary supplier, and since it cut off supplies Ukraine has been forced to buy its imports from Hungary, Poland and, more recently, Slovakia. It consumes around 50 bcm of gas annually, producing around 20bcm itself and buying in the rest.

As yet, Naftogaz, the state company based in Kiev, has revealed no details around the gas prices or volumes within the contract. Statoil are also yet to confirm further details about the deal.

The Kremlin has previously been against deals with European suppliers. Statoil was recently in the news for agreeing a potentially lucrative deal with Rosneft, the Russian energy giant, for exploration in the Arctic. Rosneft has been the subject of US and EU sanctions since 2012.

The Chief Executive of Naftogaz, Andriy Kobolev, said that the agreement represented a significant breakthrough for the company, which was committed to the integration of Ukraine with the European energy market and keen to work with the EC to facilitate this move.

Ukraine found themselves facing a near 100pc price increase from Russia several weeks after political wrangling over the ousting of a Kremlin-supported president who previously rejected a trade deal with the EU. Gazprom, the Russian state-owned utility company, ceased delivering to its neighbour in the summer after Kiev said it would not pay the elevated prices and after EU attempts at mediation failed. In 2013, Gazprom supplied 25.0 bcm of gas to the Ukraine — around 50pc of its total needs — at $413.50 per 1,000 cubic metres on average.

Russia has warned that it may also need to cut supplies to Europe because of some member states’ decisions to begin exporting gas to Ukraine once again, which is in breach of their operating contracts with Gazprom. European Commission officials have reacted against the warning and said that the terms of its Gazprom contracts allow gas to be exported without limitation to any interested customers.

Hungary, however, has immediately ceased shipping gas to Ukraine, and Gazprom has reacted by increasing its supplies to the former Soviet satellite nation. Slovakia has in turn refused to cave in under Russian pressure and is continuing to sell Ukraine large volumes of gas.

Officials from Bratislava reported that Russia cut supplies by 50pc last week. However, Gazprom later claimed that its volumes destined for Slovakia had not changed, and said that Bratislava was referring instead to its failure to meet demands for extra supplies. Statoil is likely to keep out of the arguments, as it extracts its gas supplies from the North Sea and will manage to avoid violation of Russia’s contractual agreements by doing so. Meanwhile, the political wrangling looks set to continue, and Europe waits to see what the next series of gas-led chess moves will be from Russia and its neighbouring countries.

Last updated on 06:01PM - 06/10/14