Russia refuses to renew Ukraine gas contract

Russia has announced via Prime Minister Dimitry Medvedev that Kiev will not be allowed to sign any additional natural gas delivery deals from Gazprom, the state gas company, saying that “we won’t extend a transit contract with Ukraine on disadvantageous terms.” The current agreement lasts through 2020, but consistent disagreements and renegotiations on payments have plagued it since its inception. Ukraine historically been an important transit hub for Russian energy products for the European market, but Europe has been busy attempting to bypass higher prices by contracting directly with Azerbaijan and Turkey to transport into the Eastern European market.

Medvedev’s comments come ahead of a two day visit to Kiev. Consumption of Russian gas has been steadily declining year on year since 2013, when consumption was around 50 billion cubic meters of gas and consumption was still reasonably high in 2014, at 42 billion cubic meters. In 2015, consumption is expected to clock in at only 35 billion.

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News Briefs:

  • Russia’s Gazprom has filed suit against Turkmenistan in an international arbitration court, refusing to comment on the nature of the proceedings until they are concluded. The most recent development is that Gazprom has reduced the gas procurement price for Turkmenistan within the framework of a contract that was signed between the two parties, b/c of declining international oil and gas benchmark prices. The Turkmen government then submitted an official complaint detailing that Gazprom had not paid the premium price for the gas it purchased.
  • Holders of Russian equity and debt are starting to sell off again, coming off the heels of a Morgan Stanley report that predicts a “long winter” absent any other growth drivers. As the world’s largest energy exporter, Russia’s prosperity is completely predicated on global oil prices and this measure is out of their hands and mostly in the purview of OPEC players like Saudi Arabia. Ruchir Sharma, head of emerging markets at Morgan Stanley, said that the price of oil is settling into a “new normal.”
  • Kyrgyzstan has announced that it will elect a new legislature on October 4, according to a Presidential decree issued over the weekend. President Almazbek Atambayev ordered the Central Election Commission to confirm the schedule – it is unclear if these elections were pushed forward to reduce the risk of yet another major shake-up in Kyrgyz parliamentary representation. The announcement comes just days after security forces battled with armed militants thought to belong to ISIS in Bishkek. Kyrgyzstan has a single-chamber Parliament and elections are held every five years.

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