Kiev (Platts)--19Nov2012/621 am EST/1121 GMT

Ukraine will import 26 billion cubic meters of natural gas from Russia in 2012, less than the 27 billion cu m that was originally expected, because of high gas prices, according to Energy and Coal Industry Minister Yuriy Boyko.

"This year, we will buy 26 Bcm of gas from Russia," Boyko said in an interview with Inter television broadcast over the weekend. "First, we announced plans to import 27 Bcm, but will actually buy 26 Bcm."

Ukraine, which imported 40 Bcm of Russian gas in 2011, has been seeking to cut its dependence on Russian gas imports after Moscow refused to lower its prices following more than two years of talks.

Vadym Chuprun, deputy head of national energy company Naftogaz Ukrayiny, said Friday Ukraine will reduce imports of Russian gas to 20 Bcm in 2013, down from 24.5 Bcm originally expected.

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Ukraine is the largest market for Russian gas exports and any major reduction of gas imports may have a serious financial impact on Gazprom, analysts said.

Gazprom has reacted angrily to the plans to cut the gas imports, recently threatening to take the issue to court as a 10-year contract signed in 2009 calls for Ukraine to import at least 50 Bcm/year of gas, with steep financial sanctions for a failure to do so.

READY FOR LAWSUIT

But Boyko, reacting to the threat from Gazprom, said Ukraine was prepared to defend its interests in court.

"We are absolutely right and will act in line with our national interests," Boyko said. "We will defend ourselves in Stockholm, or in London, or in Paris. We don't have any other option."

Boyko said the main reason for cutting gas imports from Russia is the high price of gas, which has been currently hovering at $430/1,000 cu m, well above $250/1,000 cu m target that Ukraine has tried to negotiate.

"We cannot stop our coal mines and lay off our people to be able to afford imports of super-expensive gas. Nobody will force us to do so," Boyko said. "If there is a trial, we will defend ourselves. We consulted lawyers concerning the possible lawsuit against us. We are ready for it."

GERMANY, RUSSIA, QATAR

Ukraine has been working aggressively over the past six months to tap alternative sources of energy in order to reduce its Russian imports.

The strategy includes developing domestic offshore natural gas deposits and shale gas deposits, but also imports of 5 Bcm/year of gas from Germany and building a $1 billion liquefied natural gas terminal near the Black Sea port of Odessa.

Boyko said the strategy will pay off within the next three years by helping Ukraine have three major sources of natural gas, including Russia, Germany and Qatar, the major exporter of LNG.

"Within the next three years, each of the gas contracts, whether with Germany, Gazprom or Qatar, will anticipate supplies of not more than 5-7 Bcm/year," Boyko said. "The rest will be produced domestically."

Ukraine produced 20 Bcm of gas domestically and imported 40 Bcm of gas from Russia in 2011, according to the energy and coal industry ministry.

Ukraine is expected within days to break ground on the construction of the LNG terminal, which will be completed in 2015 and will be able to handle imports of 5 Bcm/year of gas.

The capacity of the terminal will be increased to 10 Bcm/year in 2018, according to Boyko.

POLAND, HUNGARY

Ukraine started imports of gas from Germany on November 1 and is currently importing 1 million cu m/d, according to Naftogaz. These imports are expected to increase to 5 Bcm/year in 2013, Boyko said, adding that the imports will probably cost $2 billion/year.

In May Naftogaz and RWE Supply & Trading of Germany signed an agreement that calls for supplies of natural gas to Ukraine. The gas is currently supplied via Poland, but the supply route will be switched to Hungary when massive gas imports begin in January 2013.

"Physical supplies are now going via Poland, but starting January 1 the supplies will begin via Hungary," Boyko said. "We conducted a huge amount of work, held talks with the countries, received permissions of regulators and purchased the [throughput] capacities."

--Alexander Bor, newsdesk@platts.com
--Edited by Alisdair Bowles, alisdair_bowles@platts.com

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