Russia cuts off gas to Ukraine, Europe at risk

By Christian Lowe

MOSCOW (Reuters) – Russia cut gas supplies to Ukraine on
Sunday in a dispute that could hit deliveries to a wintry
Europe just as Moscow took over as chairman of the Group of
Eight wanting to showcase its role as a reliable energy source.

Russian state monopoly Gazprom said it had cut supplies of
gas to Ukraine by a quarter — Ukraine’s own daily imports —
after Kiev refused to sign a new contract under which it would
have to pay four times as much for the fuel.

All the gas now being pumped to Ukraine is meant to be
shipped on to Europe, which gets 25 percent of its gas from
Russia.

Gazprom said gas deliveries to western Europe would not be
disrupted, unless Ukraine covered its own shortfall by
siphoning off transit supplies being piped westward across its
territory.

But Ukraine’s Naftogaz energy company accused Russia of
playing a dangerous game of brinkmanship which put Europe’s gas
supplies in jeopardy.

“Gazprom … has cut supplies via a number of directions
from which gas transit to Europe is carried out,” Naftogaz
said.

“The volumes of gas aimed at securing transit to Europe
have been reduced … Naftogaz declares such actions
unacceptable because they endanger gas deliveries to Europe.”

GAS WEAPON

Though Russia says it is purely a business dispute, the gas
cut-off has fed concern from Washington to Berlin that the
Kremlin is prepared to use its control over massive energy
resources as a political weapon.

Ukraine’s Western-leaning president, Viktor Yushchenko, has
irked Moscow by trying to take his ex-Soviet state on Russia’s
western border into NATO and the European Union.

That, say Ukrainian officials, is why the Kremlin is
punishing Ukraine with such a huge price increase while letting
more Moscow-friendly ex-Soviet states such as Belarus go on
paying far less for Russian gas.

Moscow took over the annual chairmanship of the G8 club of
industrialized nations for the first time from Britain on New
Year’s Day, and its tenure is certain to come under intense
international scrutiny.

“Russia wants to make energy security its key message to
the G8 community, and simultaneously it is becoming a source of
danger,” said Valery Nesterov, energy analyst at Troika Dialog
brokerage in Moscow.

EUROPEAN DISRUPTIONS?

Gazprom spokesman Sergei Kupriyanov said exports to Ukraine
had been cut by 120 million cubic meters a day — equivalent to
Ukraine’s total daily imports.

He said 360 million cubic meters a day were being shipped
as normal via Ukraine to other countries, and if supplies to
western Europe were disrupted, Ukraine would be to blame.

“The Ukrainian authorities were determined to have a
conflict from the start, and from January 1 to … start
stealing gas from European consumers,” Kupriyanov said.

Eighty percent of Russian gas exports to western Europe
pass through Ukraine.

The Ukraine Naftogaz statement, contradicting Gazprom’s
figures, said the volume of gas reaching Ukraine from Russia
had been cut by 187 million cubic meters a day.

Russia’s NTV television — owned by Gazprom — quoted
Alexander Nemudrov, a Gazprom official at a pumping station in
Slovakia, as saying gas flow out of Ukraine was already
falling.

That suggested Ukraine was making up for its shortfall by
drawing gas intended for other countries. Gazprom officials in
Moscow said they would not know definitely if that was the case
until later on Sunday.

The biggest European importers of Russian gas are Germany,
Italy and France, which would have to draw down reserves of gas
stored underground or seek alternative supplies if there was a
major supply disruption.

Moscow is seeking a rise in the price of gas it sells to
Ukraine to $230 per 1,000 cubic meters from the current $50 —
a level that reflects Soviet-era subsidized rates. Ukraine
agrees in principle but wants a transitional period.

Yushchenko, propelled to power in the “Orange Revolution” a
year ago, has linked the gas switch-off to the start of
campaigning for a parliamentary election on March 26 in which
he faces a tough challenge from pro-Moscow parties.

(Additional reporting by Anatoly Titkin and Dmitry
Zhdannikov in Moscow and Olena Horodetska in Kiev)