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Russia Restores Most of Natural Gas Flow Supplies to Europe Disrupted; Dispute With Ukraine Goes On

Posted on: Tuesday, 3 January 2006, 09:00 CST

By Andrew E. Kramer

Russia's natural gas monopoly restored on Monday most of the gas it withheld from Ukraine a day earlier amid a pricing dispute, after the company said Ukraine simply withdrew gas from the export pipelines for its own use, putting Russia's primary customers in Europe in jeopardy.

Within hours of Russia's disrupting gas supplies Sunday morning, a cascading energy emergency moved westward across Europe as far away as Italy and France, as one utility after another reported dropping gas pressures at a time of peak demand amid freezing weather. The decision, which officials of the state-owned company, Gazprom, took pains to present not as a reversal but a response to Ukraine's "theft" of natural gas, does not resolve the larger dispute over pricing and transit fees. Still, the company and Russian government were facing firm criticism from European leaders. The decision Sunday to choke off the westbound natural gas pipelines was seen as a bold gamble by Moscow to influence Ukraine's internal politics ahead of a parliamentary election in March. As the pressure in pipelines tumbled through the day Monday, the European Union's top foreign policy official, Javier Solana, called Russian and Ukrainian diplomats to encourage the sides to resume talks.

The minister of economy in Germany, the largest consumer of Russian natural gas in Europe, questioned Russia's reliability as an energy supplier. Gazprom said Monday that it would restore 95 million cubic meters of gas per day, after reducing the flow by 125 million cubic meters Sunday. The company's chief spokesman, Sergei Yanov, said the restored level, expected to be reached overnight Monday, would mark only "an insignificantly amount lower" than the normal flow to Ukraine. Gazprom provides about a quarter of Western Europe's natural gas and most of that about 80 percent is shipped through a grid of pipelines that cross Ukrainian territory. On Sunday, Gazprom reduced the flow into Ukraine 20 percent, saying it expected Ukraine to continue all the remaining flow westward. But Aleksandr Medvedev, director of the export arm of Gazprom, charged that Ukraine had siphoned 100 million cubic meters of natural gas intended for export to Western Europe on the first day. Speaking on Russian television, Medvedev took pains to assure West European clients that the Continent's energy supplies were secure despite the company's dispute with Ukraine, while striving to divert any blame for a disruption onto the Ukrainian authorities. "With the indisputable thievery of our gas from the export pipes, we've decided to take all possible measure to secure our gas so that Western consumers continue to receive gas in accordance with contracts," he said on state television. Ukraine's fuel and energy minister, Ivan Plachkov, immediately denied the accusation that the country was siphoning gas for itself, a delicate issue for Ukraine, which is a signer of the European Energy Charter, a treaty that seeks to secure the flow of fuel across borders. "There has been no unauthorized diversion of natural gas," he said, according to the Interfax news agency. The decision to restore pressure does not resolve the dispute over prices and transit fees. Gazprom considers Ukraine's use of gas from the export pipelines as a theft, but said it was necessary to restore pressure to ensure deliveries farther to the west. Gazprom had said it will bill Ukraine at its asking price for gas taken from the export pipelines. "Ukraine is taking the gas from our European partners. We decided to compensate the stolen gas for our partners," Sergei Kupriyanov, Gazprom's chief spokesman, said. "We are striving from our side to provide as much gas to our partners, while Ukraine is not fulfilling its obligations," he added. Gazprom stood firm on the core of its demand that Ukraine pay more for energy that has been subsidized by Russia since the breakup of the Soviet Union. The country in 2005 purchased natural gas from Russia at $50 per 1,000 cubic meters under a deal negotiated before the change of leadership in Ukraine's Orange Revolution last winter removed the country from Russia's sphere of influence. Now, Gazprom is asking for $220 to $230, a price based on the cost of a basket of oil products traded on international exchanges, a formula used in Western Europe. "We cannot make special exceptions for Ukraine," he said. Ukrainian officials, who had been gearing up for a national conservation effort, greeted the decision that came in a telegram from Russia at around 3 p.m. on Monday.

"We think common sense won," Irina Gerashchenko, the spokeswoman for Ukraine's president, Viktor Yushchenko, said in a telephone interview. "There should be no questions of economic pressure or blackmail." Yet Ukraine's energy troubles are far from over. Gazprom made no promises to regularly supply Ukraine's energy-intensive economy in the months ahead. Also, Gazprom said Monday that gas from the Central Asian nation of Turkmenistan, which provides more gas to Ukraine than Russia, was no longer reaching Ukraine's borders. The Central Asian gas passes through Russian pipelines. The announcement put additional pressure on Ukraine by limiting its suppliers to only Gazprom though Ukrainian officials say they are still in talks with Turkmenistan's government. It also cut out an intermediary company with murky ownership that for years has been seen as a drain on Gazprom's profitability, and possibly a slush fund for Ukrainian elites. Before Gazprom's decision to resume most of its supplies, Ukraine had been bracing for an energy shortage, and maybe a cold winter. The Ukrainian authorities had said that the flow had all but stopped in three gas mains in Ukraine and that some households and factories were at risk of losing energy, according to Russian news reports. Yushchenko had appealed for voluntary conservation measures with natural gas before his office was informed of the change in Russian policy. Meanwhile, Solana, chief of the EU's foreign policy arm, spoke on the phone with Russian and Ukrainian officials through the day, according to his spokeswoman, Christina Gallach.

"He's extremely keen and eager to see the conflict resolved," Gallach said in a telephone interview. "All the European Union has been asking for some sort of resumption of supplies to happen."

Germany's minister of economy, Michael Glos, also leaned on Russia to reverse course. "Thirty percent of our gas comes from Russia at the moment. That should be increased," Glos said in comments to a German radio station carried by Reuters. "But it can only be increased if we know that deliveries from the East are dependable."

Source: International Herald Tribune

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