Gazprom Talks Bear no Fruit.

Yesterday’s Ivan Plachkov, the Ukrainian energy minister, and Gazprom chairman Alexey Miller failed to reach any agreement on additional gas supplies for 2H06. Ukraine is seeking an extra 17 bcm beyond to cover the gap after the 30 bcm of Turkmen gas that Gazprom is supplying through RosUkrEnergo runs out around the end of September. According to reports, Gazprom demanded that Ukraine first clear ~$600m of arrears that Naftogaz owes to RosUkrEnergo and also to transfer the management of the Ukrainian gas pipeline system to a 50-50 joint venture of Gazprom and Naftogaz that was formed in April 2002. However, Gazprom reportedly agreed to provide transportation if Ukraine negotiates direct gas supplies from Turkmenistan. Vladimir Nesterenko: With the Ukrainian political scene in disarray, Russia is stepping up the pressure and reminding Ukraine that the top Russian priority is to gain control of Ukraine’s pipeline system. We doubt Ukraine will succeed in restoring direct purchases of Turkmen gas and expect Gazprom will step up the pressure further as the heating season approaches. We’re still expecting another price increase before the end of the year.