Gas war set to reignite as Kiev and Moscow argue over prices

Kiev is pushing hard to renegotiate the controversial gas deal with Russia endorsed by ex-prime minister Yulia Tymoshenko back in 2009. Its threat to take Moscow to court has sparked fears of another gas war and disruption of supplies to Europe.

­The delicate yet highly explosive issue of Russian gas is again dominating relations between Moscow and Kiev.

For the past two months angry chants have been filling a central Kiev street from dusk till dawn.

The slogans vary – some say former Prime Minister Yulia Tymoshenko must be jailed, while others protest against her standing trial in the first place, accused of exceeding her powers in striking the deal. But both camps are united in their unhappiness about the price Kiev pays for Russian gas – a price set in contracts signed by Tymoshenko two years back.

“We need to revise the contract, we need to make it more suitable for the two countries’ interests,” demanded Ukrainian Prime Minister Nikolay Azarov. ” We don’t need discounts and preferential treatment. We need a fair price”.

Ukraine currently pays up to US$400 for a thousand cubic meters of Russian gas. That is no longer within the country’s tight budget, so Kiev has been pushing hard for a price drop.

But Russia says its neighbor offers nothing in return.

So bad is the need for cheaper gas that some sources say Kiev may even take legal action against Moscow to get the 2009 deal changed.

“We often hear examples of similar lawsuits in Germany and Italy,” says political analyst Mikhail Pogrebinsky. “But in those cases there were flaws in the contracts. In our case, the contract looks perfectly legitimate and needs to be fulfilled. So all these warnings of a lawsuit look like naïve attempts to bully our major partner”.

The response from Moscow suggests Kiev is not being persuasive enough.

“We made ourselves clear – if they want cheaper gas, then integrate with us into a common economic space,” Russia’s president Dmitry Medvedev commented. “If they don’t want that, then give us a good commercial offer – like selling their gas transportation system to us. They don’t want any of those, only discounts.”

With negotiations deadlocked, Kiev is looking for an escape route.

It has signed an US$800 million contract with Royal Dutch Shell to explore its reserves of shale gas – potentially the biggest in Europe.

But experts are skeptical, saying it can hardly be considered a replacement for natural gas – not to mention long-standing concerns over its safety.

“Shale gas is extracted by hydrofracking. That means special chemicals are added to the water to break up the rock formations. The components of these chemicals are kept secret by the companies in the United States, who claim it’s a commercial secret. But that water, laced with chemicals, ends up in drinking water. So shale gas development poses a serious threat to the environment and health,” warns Konstantin Simonov, the Head of the National Energy Security Fund.

Experts say shale gas reserves in Ukraine will take up to a decade to develop. Nevertheless, Kiev says it wants less Russian gas from next year, slashing its order by more than a third. That is in violation of the 2009 deal, and could lead to drastic consequences.

Another tussle over gas prices has raised concerns in Europe that there might be another gas war and another disruption of supplies to Europe. But the Russian energy minister has given assurances that the events of 2009 will not be repeated and that there is enough time to find a compromise.

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