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Message: Gazprom, Eni will be part of natural gas consortium
EMERGING MARKETS REPORT
Gazprom, Eni will be part of natural gas consortium
Dispute with Ukraine that cut off gas to Europe has cost Gazprom $1.1 billion
By Polya Lesova, MarketWatch
Last update: 11:52 a.m. EST Jan. 16, 2009
NEW YORK (MarketWatch) -- Russian state-controlled gas giant Gazprom said Friday that Italian energy firm Eni SpA plans to be part of an international consortium that would buy so-called "technical" gas in a plan that could restore Russian gas flows via Ukraine to European countries.
The consortium, first proposed on Thursday by Russian officials, aims to resolve a bitter dispute between Russia and Ukraine that has left about 20 European countries without Russian gas for the last ten days amid freezing temperatures. The dispute has cost Gazprom (UK:OGZD: news , chart , profile ) about $1.1 billion in lost revenues. Read more.
German Chancellor Angela Merkel was scheduled to meet Friday with Russian Prime Minister Vladimir Putin in Germany, according to media reports.
On Saturday, officials from Russia, Ukraine and the European Union are due to meet in Moscow to discuss the gas dispute.
The Czech presidency of the E.U. has demanded the immediate resumption of Russian gas supplies to Europe through Ukraine.
The presidency also said that the current impasse "is damaging the credibility of Russia and Ukraine as reliable supply and transit countries" and that it "will have significant financial, economic and political consequences for both countries."
The International Energy Agency, a Paris-based energy group, said Friday it was "deeply concerned" by the ongoing gas dispute between Russia and Ukraine.
"The way both parties have acted over the last weeks and notably this week is unacceptable," the IEA said in a statement. "This casts a shadow over the reputation of Russia as a reliable supplying country for Europe."
Gas consortium?
In Moscow Thursday, Putin laid out the proposal for a gas consortium in a meeting with Gazprom CEO Alexei Miller and Paolo Scaroni, chief executive of Eni.
Gazprom's Deputy CEO Alexander Medvedev on Friday that Eni and Gazprom will form part of this international consortium.
Gaz de France Suez (FR:GSZ: news , chart , profile ) and Germany's E.ON Ruhrgas are "positively considering entering into the consortium and the invitation to join is extended to all companies which should receive Russian gas supplied via Ukraine," Medvedev said.
The companies within the consortium would jointly buy the gas from Gazprom at a price of around $450 per 1,000 cubic meters, according to Medvedev.
"It [the consortium] involves Gazprom and its European partners sharing the financial risk associated with the provision of this significant volume of gas in order to unblock the current impasse, despite the fact that Ukraine has the clear responsibility to provide technical gas," Gazprom's Medvedev said Friday.
"Technical" gas is necessary to replace the gas missing from the pipeline system and to fuel the compressor stations.
"The way both parties have acted over the last weeks and notably this week is unacceptable. This casts a shadow over the reputation of Russia as a reliable supplying country for Europe."
— International Energy Agency
The paperwork for the consortium is being drawn up and "could be in place very rapidly," according to Gazprom.
"Ukraine's refusal to transit gas to Europe had, up to yesterday, resulted in losses by Gazprom of around $1.1 billion," Medvedev said.
The E.U. brokered an agreement Monday between Russia and Ukraine to resume natural-gas supplies to Europe under the supervision of E.U. monitors. The agreement, however, quickly unraveled as Russia and Ukraine blamed each other for the impasse.
Gazprom declared force majeure on its European gas exports through Ukraine on Tuesday, saying that Kiev was blocking transit routes. Ukraine, in turn, said that it was "technically incapable" of transmitting the gas.
Gazprom cut off natural-gas supplies to Ukraine on Jan. 1 because of a bilateral dispute over unpaid bills and lack of agreement on future prices. The dispute quickly escalated into a Europe-wide energy crisis when Russia cut off supplies to Europe via Ukraine on Jan. 7, accusing Ukraine of "stealing" gas meant for Europe, a charge that Ukraine denies. 
Polya Lesova is a New York-based reporter for MarketWatch.
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