Russian state gas giant OAO Gazprom , said Monday it will only ship fuel to Ukraine if it pays in advance, making good on a threat that could lead to supply cuts affecting European customers after late-night EU-mediated talks on debt repayment failed to yield a deal.
Gazprom said it hadn't received payment for a debt it put at $4.458 billion by the Monday deadline it had set. "Ukraine will receive gas only in the amounts it has paid for," Gazprom said.
The shift to prepayment is likely to lead to a reduction in supplies to Ukraine and could affect Russia's shipments to Europe, the bulk of which go through Ukraine. Industry analysts say the initial effect on European markets of any supply disruption may be limited because of current high inventories of gas in storage and lower summer demand.
Ukraine will be able to maintain domestic supplies of natural gas and ensure the transit of Russian exports to Europe for at least several months, Ukraine officials said.
"The Ukrainian side has prepared for this eventuality and we are ensuring reliable transit as well as supplies to domestic consumers," Yuriy Prodan, Ukraine's minister of energy and coal, told a cabinet meeting in Kiev, the Interfax news agency reported.
Andriy Koboliv, head of state gas company NAK Naftogaz told the same session that, "We have time to resolve this issue at least until December." Transit volumes to Gazprom's European customers are flowing normally at 185 million cubic meters a day, he said.
The officials noted that Ukraine's inventories of gas in storage—now nearly 14 billion cubic meters—and imports from Europe via reverse flows through Slovakia, combined with lower consumption in the summertime, will allow Ukraine to manage without Russian supplies.
The deadlock between the two sides coincides with growing political tensions, after Ukrainian government forces clashed with pro-Russian separatists in east Ukraine.
Ukraine has refused to pay the debts until Gazprom agrees to reduce the price to market levels. EU-mediated talks failed to reach a deal and European officials blamed Moscow for refusing to concede.
Russia accuses Ukraine of intransigence and says Kiev's price demands are unreasonable and sought to reassure its European clients that it intends to meet its contractual obligations.
There are no more negotiations scheduled.
Both sides said Monday they filed claims in an international arbitration court in Stockholm, but arbitration proceedings could take months or years to resolve.
