22 December 2008

Russia: Dispute puts Europe energy supplies at risk

The Earth Times, 22 Dec 2008

Moscow - Russian gas export monopoly Gazprom Monday warned European customers of a potential shortage in gas supplies, as Ukraine dug in its heels on a pricing dispute with the Kremlin. "We cannot rule out that the present position of the Ukrainian party and possible steps it may resort to - linked to gas transit through Ukrainian territory - could lead to a disruption in the stability of supplies to Europe," Gazprom chief Victor Zubkov, who also holds the post of first deputy prime minister, said in a statement to customers.

Gazprom last week threatened to cut gas to Kiev on January 1 over the matter of 2-billion-dollars in outstanding debt, which the country is struggling to pay back before the end of year.

European customers fear a similar situation to the breakdown in talks between Gazprom and Ukraine's NAftogaz in 2006 that led to fuel shortages and a price-spike across the continent in the dead of winter.

Ukraine's "foot-dragging" in addressing the problem, Zubkov added, "is especially puzzling given the International Monetary Fund's decision to lend Ukraine 16.5 billion dollars to stem its deficit and help it balance the budget and support the country's banking sector."

Zubkov said Gazprom has proposed to allow Kiev to redeem the debt by discounting its transit fees in 2009. Over 80 per cent of Russian gas exports cross Ukraine to Europe.

"So far, no solution has been found because of the non- constructive position of the Ukrainian party," he was quoted by news agency Interfax as saying.

Gazprom alerted clients and European Union member-states in a letter of warning sent Monday.

But Ukrainian energy officials were talking tough on Monday, declaring they were prepared for a gas cut off, and claiming Russia not Ukraine was reponsible for the down-to-the-wire conflict.

"We give a full guarantee of continued gas deliveries (to Europe)," said Oleksander Shaplak, a senior spokesman for President Viktor Yushchenko. "There will be no siphoning of gas (by Ukraine)."

"But if there is a cut-off (by Russia) we are prepared to cover our needs from reservoir reserves," he added.

Ukraine retaliated against a Russia's 2006 natural gas cut-off in by siphoning a portion of the gas the Kremlin had designated for European customers, and declaring the deduction Russia's payment to Ukraine for the use of Ukrainian pipelines.

Ukraine in recent weeks accumulated more than 16 billion cubic metres of gas in underground reservoirs, sufficient to cover Ukrainian gas needs well into 2009, Shaplak said.

Ukrainian use of gas stores in underground reservoirs in case of a Russian cut-off could worsen the long-running Russo-Ukrainian gas dispute, as most of the stored gas belongs to Russia's national gas company Gazprom, according to a Channel 5 television news report.

Shapak gave little hope of a breakthrough in the ongoing Russo- Ukrainian talks aimed at producing a new gas delivery contract before the January 1 cut-off date.

Sticking points in the negotiations included the size of Ukraine's gas debt to Russia, Gazprom rights to sell gas directly to Ukrainian consumers, and the degree to which Ukraine's 2009 gas prices should reflect the impact of the world financial crisis, Shapak said.

Russia exports Europe roughly one-third of its natural gas needs, making the market Russia's single largest export earner. Some 80 per cent of that gas travels to market via Ukrainian pipelines.

Aleksander Lukashenko, the President of Belarus, was in Moscow on Monday to negotiate a deal on energy prices by ceding possible political prizes and shares in its national transit monopoly to Moscow. Belarus is another of Moscow's key export routes.

Ukrainian President Yushchenko during Saturday remarks aired by the UT-1 television station rejected a similar turnover of Ukrainian pipelines to Russian control, saying "the preservation of our pipelines ... under our control ... is a matter of (Ukrainian) national interest."

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