Russia's Gazprom demanded a $1.66 billion pre-payment from Ukraine for June gas deliveries on Tuesday, saying the neighboring country had only half its requirements in storage to ensure a trouble-free winter.

Citing a preliminary bill, Moscow pressed ahead with its demand that Ukraine pay for June deliveries early next month, heightening a dispute over price that is pushing the two countries closer to another gas war that could cut supplies.

Previous disputes over gas have left Europe, which gets around a third of its gas needs from Russia, with limited supplies at the height of winter, spurring it to look for alternative producers. But so far it has been unable to break its dependence on Moscow.

State-controlled Gazprom said the bill was based on Ukraine taking up a contractual amount of 114 million cubic metres per day, or 3.4 billion cubic metres for the month in total.

"Taking into account non-working days, Naftogaz should pay this bill by June 2 and, starting from June 3, the company will be getting gas… only at the volumes paid for," spokesman Sergei Kupriyanov said in a statement.

This means that Ukraine needs to pay $1.658 billion for June's gas deliveries based on a price of $485 per 1,000 cubic meters, he added.

Naftogaz confirmed it had received the bill but declined to comment further.

Renegotiate contract

Ukraine wants to change the conditions of a 2009 contract that locked Kyiv into buying a set volume, whether it needs it or not, at $485 per 1,000 cubic meters - the highest price paid by any client in Europe.

Moscow dropped the price to $268.5 after then-President Viktor Yanukovich turned his back on a trade and association agreement with the European Union last year but reinstated the original price after Yanukovich was ousted in February.

Kyiv has so far refused to pay the higher price, saying gas is being used as a political tool by Moscow to punish Ukraine's new leaders for moving closer to the European Union.

In an interview with Reuters last week, Ukrainian Energy Minister Yuri Prodan called $268.5 per 1,000 cubic metres "a market and a fair" price for gas, which Kyiv is able to pay.

He said Kyiv would take Gazprom to court if the two sides failed to agree on price by May 28, a procedure used by Gazprom's other clients in Europe to win price cuts over the last couple of years.

Vitaly Markelov, a Gazprom deputy chief executive, said earlier on Tuesday that Ukraine lacked about half of the gas needed in storage to avoid problems in winter.

Twice in the past decade, price disputes have led to reduced supplies of Russian gas to European clients via Ukraine, a conduit for about half the gas Europe imports from Russia.

Ukraine received the first release of about $3.2 billion from a $17 billion two-year aid program from the International Monetary Fund last week, which Moscow hopes Kyiv will use to cover gas debts.

Anatoly Yanovsky, Russia's deputy energy minister, said on Monday Moscow would be ready to continue talks with Kyiv on gas only after Kyiv paid off its debt.

A Gazprom representative said on Tuesday gas flows to Europe via Ukraine remained stable.

The worst East-West standoff since the Cold War over Ukraine has spurred efforts to try to reduce Russia and Europe's energy interdependence. Europe is scrambling to diversify supplies and, faced with Western sanctions, President Vladimir Putin has looked to the east for new export markets.

Putin plans to visit China on May 20 and Gazprom hopes to sign a gas contract after years of talks to supply Beijing with 38 bcm per year - volumes comparable to deliveries to Germany, its biggest gas client. [Read More]

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Source: VOA News: Economy and Finance