Europe uneasy after Russia cuts Ukraine gas supply

By Meg Clothier

MOSCOW (Reuters) – Russia’s decision to sever gas
deliveries to Ukraine stirred European fears of a mid-winter
disruption to its own supplies, souring Russia’s debut as
president of the Group of Eight rich nations club.

Russia cut its neighbor’s gas supplies on Sunday after Kiev
refused to sign a new contract that would have jacked up prices
fourfold, ending the preferential treatment of Soviet days.

The row — which Kiev says is as much about politics as
economics — already seemed to be undermining deliveries to
Europe at a time when Moscow wants to showcase its credentials
as a reliable source of energy.

Though Russia says it is purely a business dispute, the row
has fed concern that the Kremlin could use its huge energy
resources as a political weapon.

Western Europe, where demand is near peak levels because of
freezing weather, imports 25 percent of its gas from Russia,
with most of that delivered by pipelines running across
Ukraine.

The Russian state monopoly, Gazprom, said enough gas was
still being piped via Ukraine to meet its commitments to other
countries. If they were not getting all their gas, it said that
meant Ukraine was tapping into it.

Nearby central European countries were already feeling the
pinch.

GAS PLEASE

Hungary’s gas wholesaler MOL said its Russian deliveries
via Ukraine had fallen by more than 25 percent, forcing it to
order big consumers to switch to oil where possible. Poland
also said supplies were down by 14 percent.

Germany’s largest gas supplier, E.ON-Ruhrgas, warned there
could be problems for big wholesale customers if the dispute
dragged on.

“If the reduction in supplies should prove to be especially
large or last for a long time or the winter turns out to be
especially cold, then we will hit the limits of our
capacities,” chief executive Burckhard Bergmann said on Sunday.

German, Italian, French and Austrian energy ministers have
made a joint appeal to Moscow and Kiev to keep gas flows steady
and an emergency European Union meeting is due on Wednesday.

Western-leaning Ukrainian President Viktor Yushchenko is
trying to take his state into the EU and NATO. This annoys
Moscow, which does not like the idea that its influence over
the former Soviet Union might be waning.

Ukrainian officials say that is why the Kremlin is
punishing Ukraine with a huge price increase while giving
Moscow-friendly ex-Soviet states such as Belarus a much easier
ride.

Yushchenko, struggling to live up his people’s high hopes
after the “Orange Revolution” a year ago, says Ukraine is
prepared to pay more for its gas — but will not agree to a big
jump all at once. Moscow wants to raise the price to $230 per
1,000 cubic meters from the current $50.

Ukraine had threatened to retaliate by raising the rent
that Russia’s navy pays to use the Ukrainian port of Sevastopol
as headquarters for its Black Sea fleet.

It also says it is entitled to skim off 15 percent of gas
to cover transit fees, but Gazprom is accusing Ukraine of
siphoning off gas destined for Europe illegally.

Ukraine still has gas thanks to reserves and the country’s
own modest output and officials say there is enough in store to
see households through the winter.

But they are making no comment on the security of supplies
to industry and shortages could begin to bite within days.