Ukrainian gas dispute with Russia in danger of flaring up again

Ukraine has openly signaled its displeasure at the terms of the 2009 agreement between the two countries for the supply of gas and it has put former Prime Minister Yulia Tymoshenko on trial for allegedly forcing the agreement upon national gas providers. Ukraine has contested that the high price of gas, currently set at US$ 350 per 1000 m3 of gas makes Ukrainian products uncompetitive in world markets.

However, the Russian President, Dmitry Medvedev, speaking to euronews in Yaroslavl, said that,  "I hope that after all the recent experiences our close partners and friends must learn that you can't torpedo the existing contracts- even if you don't like them, like when our colleagues and partners, the president of Ukraine or the Ukrainian Prime Minister say that the contract is unfair and bad and we won't honour it. It is completely unacceptable."

Mr Medvedev said that Russia would like to bring Ukraine into a Customs Union with Russia but Ukraine is resisting this on the grounds that the World Trade Organisation will not allow such a thing. Russia has also previously offered to invest in Ukraine’s gas transit system and integrate the two systems more closely.

Ukraine has been resistant to such moves, but with Russia effectively holding them to ransom over its energy supplies, Ukraine is going to have to be creative to find a solution. One such proposed solution is shale gas.

Ukraine has sealed a US$ 800 million deal between Royal Dutch Shell and Naftogaz to exploit the country’s shale gas reserves and it is hoped this will ultimately help reduce Ukraine’s dependence on Russian gas.

Published on 09/09/2011

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