Ongoing Ukraine malaise adds to upside of gas alternatives

Gazprom confirmed this week that Naftogaz has paid for February gas supplies, But analysts say economic and political instability in Ukraine could see more payment issues arise over the longer term.

The Ukrainian security service raided Naftogaz headquarters on Wedensday – in search of documents related to supply and transit agreements for Russian gas.  That was after a criminal investigation was launched against officials of the Ukrainian gas company earlier in the week.

Naftogaz settled its $360 million February account with Gazprom on Thursday, and now wants to negotiate a reduction in supplies below an agreed level.  Gazprom, bearing in mind the dire effects of the financial crisis on Ukraine, says it will not fine the country for a breach of contract.

The pay-off came after Prime Minister Vladimir Putin said Russia could have to cut supplies to Ukraine if payment was not received by Saturday.

“We view the events in Ukraine as their internal affairs only. At the same time we cannot help but notice the possible negative consequences for the energy supplies of consumers in Ukraine and in Europe.”

Tom Mundy, Equity Strategist at Renaissance Capital, says this could be the time for alternative transit routes to be developed.

“If Nord Stream is built, if South Stream is built, you're getting at least some option and should the transport through Ukraine go down, you'll have enough capacity to direct flows around Ukraine for a while.”

On Friday, Russian first deputy for an understanding on ecological measures for Nord Stream pipeline construction in the Baltic Sea to be completed.