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Ukraine threatens to block Europe gas supplies

Latest update : 2008-03-04

After Russia threatened further cuts to the Ukraine's gas supplies, Kiev hinted it would cut flows of Russian gas to Europe through its pipelines. Russia said it expects Ukraine to "intensify" efforts to resolve the dispute.

Ukraine hinted it would cut flows of Russian gas to Europe through its pipelines if it ran short of domestic supplies, after Moscow said on Tuesday it would halve deliveries to Kiev in a row over payments.

A similar dispute between Moscow and Kiev at the start of 2006 disrupted supplies to Europe, triggering a political crisis and leading to questions about Russia's reliability as an energy supplier.

Almost a quarter of Europe's gas comes through Ukraine.

Both Ukraine and Russian gas export monopoly Gazprom said deliveries to Europe were running normally. But the European Union voiced concern and urged both sides to "quickly find a definitive solution to this commercial issue".

Some analysts said the situation was a major challenge to Gazprom's status as a reliable gas supplier to Europe.

"In the long run, this may have an impact on European consumers' preferences as they try to diversify sources of gas away from Gazprom," said Pavel Kushnir from Deutsche Bank.

Ukrainian state firm Naftogaz hinted it could take gas from the transit pipelines if it could not meet Ukraine's energy needs.

"Naftogaz declares that it can guarantee uninterrupted transit for European consumers until such time as Ukraine's energy security comes under threat," company spokesman Valentyn Zemlyansky told journalists in Kiev.

"Naftogaz reserves the right to introduce appropriate, asymmetrical actions to defend the interests of Ukrainian consumers," he said, adding that mild weather and sufficient reserves would allow Ukraine to cope for now.

Not everyone in Ukraine was convinced.

"Reductions will firstly affect production areas with round-the-clock operations, like steel and chemicals," said Anatoly Kinakh, head of the Ukrainian Union of Industrialists.

"They will hit equipment and quality of output so it cannot go on for any length of time. There is no basis for any suggestion that we could live for a month on our reserves."



Gazprom's chairman Dmitry Medvedev, who won Russia's presidential election on Sunday, called on Ukrainian President Viktor Yushchenko to abide by previous gas deals and settle the gas debt issue as quickly as possible.

But neither Yushchenko nor Prime Minister Yulia Tymoshenko, less favourably viewed by the Kremlin, made any fresh statement.

Gazprom blamed Ukraine for the latest cuts, to take effect at 1700 GMT, and added a further 25 percent reduction from an initial 25 percent cut on Monday. Ukraine will get around 70 million cubic metres of gas a day, 50 percent of usual levels.

Russia said Kiev owed $600 million in unpaid bills and had not resumed negotiations since it threatened to reduce supplies.

Though all of Gazprom's exports are reaching Europe, Ukraine said the firm had paid no transit fees for gas going to Europe since December, a statement denied by Gazprom.

Yushchenko, who had accused Tymoshenko's government of failing to keep to payment schedules, last month clinched a deal on arrears and supplies during talks with Kremlin leader Vladimir Putin. But that appears to have unravelled, following a subsequent visit by the more strident Tymoshenko to Moscow.

Tymoshenko opposes the existence of any intermediaries in gas trade.

"Everything is linked to the fact that Tymoshenko is now in power and her attempts to eliminate intermediaries from the gas trade. This is what has caused the increased tension," said Volodymyr Fesenko from Penta, a Kiev-based think tank.

It was not clear if Medvedev, who will be inaugurated in May, played any role in the decision to reduce supplies.

Diplomats say most key Gazprom decisions are taken personally by Putin, who is set to be prime minister under Medvedev.

Ukraine's opposition Regions Party, more pro-Moscow than the government, blamed Tymoshenko's administration for the mess, saying it lacked "professionalism".

Date created : 2008-03-04