Gas Row Escalates
January 6, 2009
The Russian reduction, the second since January 1 by Russian gas monopolist Gazprom, would "begin to cause problems in getting sufficient gas to Europe," in a few hours, said Valentyn Zemliansky, a Naftogaz Ukrainy spokesman.
Gazprom cut shipments to just 72 million cubic meters of gas for European consumers, from 260 million on Monday and an average of 300 million previously.
Officials in both countries confirmed plans to renew talks on ending the conflict in Moscow on Thursday.
But the sides remained far apart on a host of issues, while the steep drops in gas supplies critical for heating struck Europe simultaneously with a vicious snap of cold weather.
Austria state gas distributor OMV AG said a 90-percent decrease of Russian supplies to Austria means that a number of Western and Central European countries further downstream would be affected.
Spokeswoman Michaela Huber confirmed that Hungary, Croatia, Slovenia, Italy, Germany and France would receive only 10 percent of the volumes usually supplied by OMV. But Huber said OMV was not the only supplier to these customers.
Europeans forced to dig into reserves
The flow of Russian gas supply was also terminated at the Ukrainian-Romanian border, shutting gas to Bulgaria, Greece and Macedonia, the Bulgarian supplier Bulgargaz said.
Bulgargaz chief executive Dimitar Gogov said his country had enough reserves "for a few days."
Neighboring Romania reported that the main pipeline bringing Russian gas and covering two-thirds of its supply was shut down.
Turkish Energy Minister Hilmi Guler confirmed the complete cut-off of gas shipped through the Balkans. Turkey hopes to increase deliveries of Russian gas via an alternative pipeline under the Black Sea, he said.
In Prague, the Czech gas importer RWE Transgas said the flow of Russian gas dropped by a "serious" 75 percent early Tuesday. The company said it would increase its supplies of gas from Norway and dip into underground reserve to compensate.
But if average nationwide temperatures fall below minus 5 degrees centigrade, these alternative gas sources would last for "weeks" only, RWE Transgas executive Jan Nehoda said Tuesday.
EU changes its tune and condemns cuts
The European Union -- which had previously remained aloof from what it called an inter-company dispute -- on Tuesday condemned as "completely unacceptable" Russia's latest the cut-off of natural gas to EU members.
The Czech government, current holder of the EU's rotating presidency, and the European Commission demanded "that gas supplies be restored immediately to the EU and that the two parties resume negotiations at once," a joint statement said.
Czech Prime Minister Mirek Topolanek was less diplomatic, telling reporters in Prague "Other countries should not be held hostage - this is a message for both sides."
National gas suppliers in several EU-member states said the crisis underscored the importance for alternative supply routes for gas to Europe, such as the Nabucco pipeline, which bypasses both Russia and Ukraine to carry gas to Europe from the Caspian Sea.
Europe is heavily dependent on Russian natural gas deliveries, with Moscow providing EU nations roughly one-quarter of all gas consumed, 80 per cent of it coming to market from pipelines crossing Ukraine.
"Gazprom is doing everything in its power not to allow a reduction of gas to Europe, but its powers are not boundless," Gazprom deputy chairman Alexander Medvedev told Russian state television Vesti 24.
Putin gives Gazprom the OK to raise stakes
Russian Prime Minister Vladimir Putin on Monday gave Gazprom the order to go ahead with a further 20 percent cut gas to Ukraine by 65.3 million cubic meters per day -- the amount Moscow says Kiev is stealing from European clients further downstream.
Gazprom had already fully cut deliveries of gas intended for Ukrainian customers after talks on non-payments by Kiev and gas pricing for 2009 expired on New Year's Eve.
Briefing Putin in a televised meeting, Gazprom chief executive Alexei Miller proposed Gazprom lower the supplies of gas earmarked for Europe via Ukraine by an amount equal to the volume it suspects Kiev of diverting.
He added that Kiev's debt would soon amount to billions of dollars if the deadlock continues. Gazprom claims an outstanding $614 million for late payments on 2008 supplies.
Ukrainian officials were quick to reject the Russian claims, saying they had paid Russia in full for all gas used through the end of 2008, and that Russian cut-offs in early 2009 were punitive.
Reductions in Russian gas flow through Ukraine are necessary to maintain pressure in gas pipelines, said Naftogaz's Dubina.
Feeding the stand-off and polemics is long-simmering political tension between the two post-Soviet neighbors.
The current conflict came to a head at the end of 2008 with the expiration of the Russo-Ukrainian contracts for gas shipments. Ukraine rejected a price increase to $250 -- from $179.50 -- per 1,000 cubic meters on Russian gas.
Gazprom cut the taps to Ukraine in retaliation, and raised its asking price to 450 dollars. Ukraine countered with a demand the price of shipping gas paid by Russia to Ukraine be hiked from $1.6 to $2 per 1,000 cubic meters, an offer rejected outright by the Russians.
European customers pay a higher price to Gazprom than Ukraine, but industry analysts say Kiev's unwillingness to agree on a current market price is grounded on widespread industry expectations the price of natural gas will fall sharply in coming months, following the slump in global oil prices.
Moscow's relations with Ukraine have grown increasingly acrimonious over moves by Kiev's pro-Western leadership to join NATO and its support for Georgia during its war with Russia in August.