Natural Gas Dispute Is Settled, But Questions Remain

Energy officials from Russia and Ukraine on Jan. 4 settled a dispute that had prompted Russia's largest natural gas supplier, Gazprom, to shut off shipments of fuel to Ukraine.

The dispute certainly disrupted the supply of natural gas in Ukraine. It also caused serious shortages in countries in Central and Western Europe because pipelines carrying natural gas to those areas traverse Ukraine. Although the disruption was short-lived, it has caused a spate of European rethinking about the security of the energy supply.

Russia supplies a quarter of Western Europe's natural gas, and 80% of that supply travels through the Ukrainian pipeline. Other pipelines serve the region as well; a new one, scheduled for 2010, will be built jointly by Gazprom, which is controlled by the Russian government, and Wintershall, the oil and gas subsidiary of BASF.

At the heart of the Ukrainian dispute was Gazprom's decision to more than quadruple its price to the former Soviet Union member. The move was widely seen as a decision by Russian President Vladimir Putin to punish the West-leaning Ukrainian government, although Gazprom officials insisted the change was to bring the gas price to global levels. The price would have risen to $230 per 1,000 m³ from $50.

Other Russian allies, including Belarus, continue to pay at the low level. Even the Baltic countries Latvia, Lithuania, and Estonia—former U.S.S.R. member countries but now members of the European Union—are charged $110 per 1,000 m³. In the new agreement, Ukraine will pay $95 per 1,000 m³.