Using Language Not Conducive to Settlements

Prospects of an agreement between Ukraine and Russia over the pricing of long term natural gas contracts appear to heading in the wrong direction.

Ukraine has been seeking a revision of its 2009 gas deal with Russia, claiming the gas price formula is unfair. The arrangement ties the price for gas to the international spot price for oil, while much favorable pricing presently exists in the spot market.

The two countries have been discussing a price discount for over a year, but Russia is linking it to measures that would move Ukraine closer to Moscow's economic fold, including Kiev joining the Russia-Belarus-Kazakhstan customs union and it agreeing on acquisition of its state owned energy company Naftogaz by Russia's Gazprom.

The rhetoric was turned up earlier in the week by Ukrainian Prime Minister Mykola Azarov, who said that his government was ready to initiate court proceedings against Russia in order to break the contract, if a new pricing agreement wasn't reached by mid-October.

Energy Minister Yuriy Boiko then re-iterated Ukraine's position that it has no intention of selling Naftogaz's natural gas transit pipelines which move upwards of 80% of Russia's natural gas deliveries to European markets, or of merging the company with Gazprom.

Russian President Dmitry Medvedev's response, as reported by Interfax, was to accuse Ukraine of "sponging" by asking for cheaper gas.

Countering Azarov's comments on Tuesday that Ukraine will slash its gas purchases from Russia by two-thirds in the next few years, Moscow said that Ukraine would be obliged to pay for at least 33 billion cubic meters of gas in 2012 under the take or pay contract.

Winter approaches. Given the negative tone of the exchanges between the two parties, talk of a disruption in gas supplies to Europe as has occurred twice in recent years, will surely re-surface if no near term progress is made.