Ukraine threatens arbitration over gas price

The dispute is fraught with a third "gas war" between Russia and Ukraine. In 2006 and 2009 Europe was left freezing in winter when Kiev syphoned Europe-bound Russian gas after Russia cut deliveries to Ukraine.

Russia and Ukraine appear to be heading towards another gas price war that may further inflame the East-West standoff over the former Soviet state.

Ukraine’s Acting Prime Minister Arseniy Yatsenyuk said his government did not accept the price of $485 per 1,000 cubic metres of natural gas that Russia set this week for Ukraine after scrapping earlier discounts.

Mr Yatsenyuk told a abinet meeting on Saturday that Ukraine was only prepared "to continue buying natural gas at the price from last year . . . that is $268." He said Ukraine would try to replace Russian supplies with gas purchases in Europe.

Acting Energy Minister Yuri Prodan said Ukraine would take Russia to Stockholm arbitration court if talks fail to bring about a cut in natural gas prices.

Russia’s state gas monopoly Gazprom, acting with full approval from the government, has made it clear it will not back off. Gazprom said Ukraine had violated the terms for getting a $100 discount because it had run up a debt of $2.2 billion for gas deliveries.

Following Crimea’s reunification with Russia last month, Gazprom cancelled another $100 gas discount it granted to Ukraine under a 2010 agreement on extending the Russian lease of a naval base in Crimea’s Sevastopol from 2017 to 2042.

The gas price dispute is fraught with a third "gas war" between Russia and Ukraine. In 2006 and 2009 Europe was left freezing in winter when Kiev syphoned Europe-bound Russian gas after Russia cut deliveries to Ukraine.

Russia supplies 30 percent of Europe’s gas and almost half of it, or more than 70 billion cubic metres, is piped through Ukraine.

Gazprom chief Alexei Miller earlier this week warned European Union energy commissioner Guenther Oettinger that uninterrupted supplies to Europe in winter could only be guaranteed if Ukraine’s gas storage facilities in Ukraine, which can hold 32 billion cubic metres of gas, are filled up during spring and summer.

At their Energy Council meeting this week the E.U. and the United States promised to help Ukraine cut back on Russia gas by arranging reverse flow of gas to Ukraine from Europe.

However, Gazprom’s Miller has questioned this option. In an interview to Rossiya-24 TV channel on Saturday he said that technologically the pipelines that carry Russian gas to Europe cannot be used for piping gas in reverse direction. Therefore, he said, the proposed reverse flow would be «virtual,» that is, on paper only, whereas in reality Ukraine will just take gas from the pipe that goes to Europe.

Mr. Miller warned European gas operators that such supplies to Ukraine may be illegal.