Europe, US uneasy after Russia cuts Ukraine gas supply

By Meg Clothier

MOSCOW (Reuters) – The United States said Russia’s halting
of gas supplies to Ukraine raised questions about use of energy
as a political weapon, and European countries voiced concern
their supplies could be hit at the height of winter.

Russia, taking over the G8 chairmanship for the first time
this month aiming to promote itself as a reliable energy
source, cut its neighbor’s gas supplies on Sunday.

Moscow said it had no choice but to act after Kiev refused
to sign a new contract that would have jacked up prices
fourfold, ending the preferential treatment of Soviet days.

The Kremlin describes the dispute as a purely commercial
matter. But Kiev sees an attempt to undermine its pro-Western
government and says cutting Ukrainian supplies will undermine
deliveries passing through the same pipeline complex to Europe.

The move appeared to be affecting deliveries to central
Europe by early evening, with both Hungary and Poland reporting
reduced deliveries.

Washington stepped into the row, with the State Department
saying it regretted Russia’s move.

“Such an abrupt step creates insecurity in the energy
sector in the region and raises serious questions about the use
of energy to exert political pressure,” State Department
spokesman Sean McCormack said in a statement.

“The U.S. has encouraged a compromise solution, and we
remain hopeful that a resolution will be reached between the
two sides that provides energy security and predictability for
all concerned.”

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.

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.