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Azarov assures EU on Russian gas transit
Journal Staff Report

KIEV, Sept. 5 – Prime Minister Mykola Azarov assured the European Union on Monday that Ukraine will continue uninterrupted supplies of Russian natural gas via its territory even as it tries to renegotiate its gas agreement with Moscow.

Azarov made the comments after tensions escalated between Kiev and Moscow amid disagreements on gas prices and supply volumes, potentially threatening Europe with supply disruptions.

“We will make sure that gas transportation to Europe proceeds at full capacity,” Azarov said at a meeting with his Slovakian Foreign Minister Mikulas Dzurinda.

Russia moves about 80% of its Europe-bound gas supplies via pipelines in Ukraine. Russia meets about a quarter of Europe’s gas needs.

Tensions rose high on Friday and Saturday after Ukraine announced plans to reduce Russian gas imports by 33% next year, while Russia reacted with threat of sanctions.

Ukraine has been trying unsuccessfully to renegotiate the 10-year gas agreement with Russia signed between Naftogaz Ukrayiny and Gazprom of Russia in January 2009, but Moscow has refused to cooperate.

Azarov said Ukraine may liquidate Naftogaz Ukrayiny by breaking it up and spinning off separate companies, a move that would automatically cancel the agreement with Gazprom.

But Russian President Dmitry Medvedev warned his Ukrainian counterpart Viktor Yanukovych on Saturday that Ukraine’s economy will face “serious consequences” if the government goes ahead with Naftogaz liquidation.

On Monday, Azarov again said the gas agreement with Russia was extremely unfavorable, but said Ukraine will stick to the contract until it is re-negotiated.

“We will, of course, implement the contact, but at the same time we will continue the talks with our Russian partners,” Azarov said.

Azarov, in a separate statement released on Monday, invited Russia to join a project of natural gas extraction in the country as a compromise for changing an agreement towards lowering prices.

He said Ukraine had about 1 trillion cubic meters of known natural gas reserves, and said additional 4 trillion cubic meters are likely to be added to the reserves after exploration data is completed.

“We hope that we can reach the necessary compromise with Russia,” Azarov said in the statement. “The long-term interests must prevail.”

Ukraine has been seeking to ease tensions with Russia after an escalation last week with the two countries threatening to take measures after 18-month gas talks have failed to achieve results.

Russia is Ukraine’s only supplier of natural gas, and is expected to deliver about 40 billion cubic meters in 2011. Ukraine also produces about 20 Bcm of gas domestically.

As Russia refused to lower its gas price over the past 18 months of talks, Ukraine has last week announced plans to cut Russian gas imports 66% over the next five years, including 33% cut to 27 Bcm in 2012.

Russia warned that Ukraine must import at least 33 Bcm annually until the current agreement expires in 2019, or face sanctions.

Azarov said last week that Ukraine has about 11 trillion cubic meters of all kinds of gas, including natural gas, shale gas and methane, in its soil.

Royal Dutch/Shell Group on Thursday became the first company that was awarded a deal to start extraction of shale gas in Ukraine.

Shell is expected to invest $200 million in exploration and $600 million in development of shale gas production, according to the signed agreement.

Shell, along with Chevron and Eni, has been recently cited by the government as frontrunners in developing Ukraine’s shale gas potential.

Ukraine is believed to contain between 1.5 trillion cu m and 2.5 trillion cu m of shale gas in its soil, according to Naftogaz Ukrayiny, the national energy company.

Ukraine hopes to produce at least 5 billion cu m of shale gas annually within the next several years, according to a source in the government. (tl/sb/ez)




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