Russia Doubles Gas Flows to Ukraine, Ramps up Europe Deliveries

Russian natural gas deliveries to Ukraine doubled at the start of this month after the countries extended a temporary agreement over pricing, while supplies to European countries also ramped higher, data showed.

As of May 1, Ukraine's state-run Naftogaz began importing 19.5 million cubic metres/day (mcm) from Russian export monopoly Gazprom, double what it took in April, a spokesman for Ukraine's gas grid operator Ukrtransgaz said.

In response Ukraine nearly halved gas imports from countries such as Slovakia, Poland and Hungary, to 21 mcm from 38 mcm.

These flows were introduced as part of a package of European Commission-led measures to keep Ukraine supplied after a protracted row over unpaid bills and pricing led Russia to cut flows to its neighbour last year.

A Naftogaz spokesman told Reuters that Ukraine imported 1.5 billion cubic metres (Bcm) in April, with 1.2 Bcm coming from Europe and 0.3 Bcm from Russia.

But Ukraine and Russia agreed in early April a new gas price for the second-quarter of around $247 per 1,000 cubic metres, making it likely that Ukraine would at some point in this quarter boost Russian intake, especially because the new deal made Russian gas cheaper than European imports.

The Commission has said it wants to broker further talks between Russia and Ukraine to try to get a more permanent solution, but no date has been agreed yet, a Commission official said on Monday.

The European Union for its part has also seen Russian gas deliveries increase since the start of May and will now be able retain even more supply as export commitments to Ukraine ease, potentially weighing on wholesale prices of the fuel at trading hubs.

Russian flows to Europe rose to 345 million cubic metres/day by May 2 compared with around 318 mcm/day on April 29, pipeline flow data on Reuters Eikon showed.

The rise in Europe-bound flows may also reflect structural shifts feeding through into the gas market following a collapse in oil prices earlier this year.

European utilities had earlier deferred taking delivery of large Russian gas volumes until at least the second quarter when weaker oil prices will have fully worked through into gas contracts, making the supply cheaper.

Russian long-term gas supply contracts reflect the price of oil with a time delay of three to six months.

As a stop-gap measure, utilities chose to raid inventories to compensate for taking less Russian gas.

Inventories which are now just 28 percent full, according to data from Gas Storage Europe, can be refilled using the cheap Russian supply that was missing earlier in the year.

(By Oleg Vukmanovic and Barbara Lewis, Additional reporting by Pavel Polityuk in Kiev, Jan Lopatka in Prague and Vladimir Soldatkin in Moscow)