Russian co. cuts gas supplies to Ukraine

January 1, 2009 9:58:40 AM PST
Russia's gas monopoly Gazprom cut all natural gas supplies to Ukraine on Thursday morning after talks broke down over payments for past shipments and a new energy price contract for 2009. The cutoff raised fears of a repetition of the January 2006 gas crisis, when a similar dispute between Russia and Ukraine briefly interrupted gas shipments to many European countries. But both Russia and Ukraine took great pains Thursday to prove they can be reliable energy partners for Europe.

They also appeared to be moving closer to a solution, although no new talks were scheduled.

While cutting gas to Ukraine, Gazprom said it also increased the amount of gas pumped through pipelines that mainly serve Europe. Ukraine's president and prime minister, meanwhile, said they would guarantee the uninterrupted transit of natural gas through Ukrainian territory to Europe.

Europeans get about a quarter of their gas from Russia, and Ukraine controls the pipelines through which Russia supplies most of its customers in Europe. Natural gas is used for heating and to generate electricity, and the cutoff to Ukraine comes as Europe approaches the depths of winter.

Russian Prime Minister Vladimir Putin warned Ukraine against diverting gas intended for other customers, saying that could have "quite serious consequences for the transit country itself" by damaging relations with Europe.

Gazprom spokesman Sergei Kupriyanov said it would be clear only Friday whether all the gas for Europe was getting through.

European countries also have built up their gas storage since the 2006 crisis and would be unlikely to see any disruption for several weeks, said Chris Weafer, chief strategist at Uralsib bank.

Naftogaz director Oleh Dubina has said Ukraine has enough gas in reserve to last through early April.

The deadlock over gas supplies reflects the deep political split between Moscow and Kiev.

Ukrainian President Viktor Yushchenko has angered the Kremlin through his efforts to build ties to Western Europe and his support of Georgia in its August war with Russia.

Ukraine's position in the dispute is further complicated by divisions in the country's leadership. Yushchenko and Prime Minister Yulia Tymoshenko, bitter political rivals, are at odds over gas policy and relations with Russia, among other issues.

Gazprom had warned it would cut gas supplies unless Ukraine paid off all of a $2.1 billion debt and signed a deal setting prices for 2009 deliveries by midnight Wednesday. Neither was done.

Naftogaz said it had covered the debt when it transferred $1.5 billion on Tuesday to Swiss-based gas trader Rosukrenergo, which is half-owned by Gazprom. Gazprom, however, claims Ukraine owes $600 million more in fines for late payment.

The other stumbling block was the failure to sign a contract for 2009 gas deliveries.

Gazprom had first insisted that Ukraine pay $418 per 1,000 cubic meters of gas in 2009, more than double the $179.50 it paid the previous year.

On Wednesday, Gazprom offered a contract with gas set at $250, which Ukrainian officials said was still too high.

Yushchenko and Tymoshenko offered early Thursday to pay Russia $201 per 1,000 cubic meters of gas if Russia agrees to raise the future price it pays to use Ukraine's pipelines to $2 per 1,000 cubic meters per 100 kilometers.

Gazpom has said the $250 offer is already low and contingent on the current transit fee of $1.70 remaining unchanged. Later Thursday, Naftogaz's Dubina said Ukraine was willing to pay $235, with a transit fee of $1.80.

While Gazprom's European customers now pay more than $400, the cost of gas is expected to fall sharply in the spring as a result of the steep drop in the price of oil.


Associated Press writer Maria Danilova contributed to this report from Kiev, Ukraine.