Gazprom, Ukraine talk gas prices in Kiev

KIEV, Ukraine, May 24 (UPI) -- Gazprom Chief Executive Officer Alexei Miller met with Ukraine's Energy Minister Yuri Boiko in Kiev to discuss prices for natural gas deliveries to Ukraine.

Ukraine wants a better deal for Russian gas than the one signed in 2009, when Moscow and Kiev, led by a Russia-critical government, were on icy terms. State-controlled Russian energy giant Gazprom has so far refused to alter the agreement.

"We need to find mutually beneficial solutions and use them to build our relations," Russian news agency Interfax quoted Ukraine's President Viktor Yanukovych as saying in response to the Tuesday meeting in Kiev.

The Russian-Ukrainian gas deal is linked to the oil price, which has soared in recent months due to a growing economy in Europe, the Fukushima nuclear disaster in Japan and the instability in North Africa and the Middle East.

Ukraine currently pays nearly $300 per 1,000 cubic meters of gas but that price could increase by $100 until the end of this year. Customers in Western Europe have also tried to drop the oil price linkage from their long-term contracts with Gazprom.

"Both the base price and the formula itself raise questions," Yanukovych was quoted as saying. "The formula that is used in Europe does not suit Ukraine." Because of a smaller distance between Ukraine and Russia, the gas price should be "much lower than that for other European countries," he added.

The Russians are in a comfortable negotiating position.

Europe's demand for gas is set to remain stable or even rise as Germany, Europe's largest economy and one of Gazprom's most important clients, considers dropping nuclear power. As an alternative bridge technology, German Chancellor Angela Merkel last month mentioned plans to build modern gas-fired power stations.

Gazprom earlier this month finished the first leg of the 760-mile Nord Stream pipeline, designed to move up to 55 billion cubic meters of natural gas to Western Europe, enough to meet the demands of 25 million homes.

The pipeline, which is a major boost for Russian gas sales in Europe, could start deliveries before the end of the year, said the companies involved, which apart from Gazprom include Eon Ruhrgas and BASF/Wintershall from Germany, Gasunie from the Netherlands and GDF Suez from France. It bypasses traditional transit country Ukraine, which is worried that one of its key state income sources – gas transport fees – will be gradually drained over the coming years.

The world's largest natural gas producer, Gazprom last month reported record earnings that trumped even those of ExxonMobil and Chevron, citing high oil prices (which in European long-term contracts determine the gas price) and a spike in demand. At the same time, Gazprom gradually raised prices at home to increase profits and reduce gas waste.