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Tuesday, January 20, 2009

Europe feels chill of Russia gas row

6 January 20098 - Upstream OnLine - Russia sharply cut gas flows to Europe via Ukraine today in a dramatic worsening of a pricing dispute with Kiev that threatened to disrupt supplies as far west as Italy and Germany. Russian export monopoly Gazprom said it had supplied around 65 million cubic metres per day to Europe today through ex-Soviet neighbour Ukraine, a fall of 78% from the 300 MMcmd it had been shipping since the dispute erupted on 1 January. The European Union, dependent on Russia for a quarter of its gas, urged Moscow and Kiev to find a solution this week. The head of Ukraine's state energy company Naftogaz Ukrainy said he would fly to Moscow on Thursday, while Gazprom said it was ready to talk any time. Bulgaria, Turkey, Macedonia, Greece and Croatia said flows of Russian gas via Ukraine had come to a halt, creating what Bulgaria called a "crisis situation" in the middle of winter. EU members Austria and Romania said deliveries were down 90% and 75% respectively, and German energy player warned there could be gas shortages in Europe's biggest economy if the dispute dragged on and sub-zero temperatures persisted. "Even our possibilities will reach their limits if these drastic cuts in shipments last and if temperatures continue to stay at very low levels," E.ON Ruhrgas boss Bernhard Reutersberg said. Gazprom can only guarantee gas supplies to Italy of 7 MMcmd today, or less than 20% of the expected amount, an Italian source close to the matter said. The industry ministry earlier said Rome planned to increase gas imports from alternative suppliers. Russia and Ukraine blame each other for the crisis, which has struck at the height of the European winter and spread alarm across the continent. The baseload day-ahead price for gas traded in London was up 18.5% at its highest since late October, driven by cold weather and anticipation that a protracted dispute could have a knock-on effect on British supplies. Gazprom spokesman Sergei Kupriyanov declined to elaborate on the reasons for the sharp fall in supply to Europe today. "There was a request for 130 MMcmd. We have supplied those volumes minus 65.3 MMcmd," he told Reuters. The figure of 65.3 MMcmd refers to the amount of gas that Moscow accuses Ukraine of stealing since 1 January by siphoning off gas meant for Europe. Gazprom had previously accused Ukraine of shutting down three Russian export pipelines early today and said it was a hostage of Kiev's "irresponsible behaviour". But Ukraine blamed Russia, with President Viktor Yushchenko saying Moscow would continue cutting gas supplies to Europe or stop them altogether. State energy company Naftogaz said Russian supply was down to 58 MMcmd, below the Gazprom figure. Ukraine's government ordered regional utilities to start using fuel oil instead of gas. Neighbouring Slovakia will declare a state of emergency, Czech news agency CTK reported. Poland cut gas supplies to industrial clients, while Serbia and Bosnia said Russian supplies had completely stopped. The Czech Republic, which holds the EU's rotating presidency, said it was considering the "extreme option" of a three-way EU-Russia-Ukraine summit. "However this is not on the table yet because we insist the two sides must reach an agreement," Prime Minister Mirek Topolanek said. The dispute threatens to worsen Russia's ties with the West, already fraught after its war with Georgia last year. Europe's heavy dependence on Russian energy - and vulnerability to supply disruption - was highlighted when Moscow reduced volumes to Ukraine on New Year's Day after failing to reach agreement with Kiev over gas prices. But most larger EU countries say they have large amounts of gas stockpiled after several mild winters, and have access to supplies from sources such as Norway and Algeria. "If there are significant drops in supplies to the European Union, the key question is whether it goes on for a very long time. But it would have to go on for weeks or months for serious problems to arise for Western European customers," said Simon Blakey, director of European research at Cambridge Energy Research Associates. Russia and Ukraine have clashed repeatedly on a range of other issues, particularly the ambition of Ukraine's pro-Western leaders to join Nato. The disruption comes at a bad time for Europe, which is experiencing a cold snap likely to drive up gas demand. "We are in a crisis situation," Bulgaria's Economy Ministry said in a statement. State player Bulgargaz told industrial users it was suspending or cutting supplies to a minimum and urged them to switch to alternative fuels like oil. Two fertiliser companies had to halt production. The government said people would not be left in the cold, but urged households to start using other means of heating. Temperatures on Monday night fell below minus 15 Celsius (5 Fahrenheit). Worries about European gas supplies, coupled with Israel's military operation in Gaza, have pushed oil prices up to a three-week high close to $50 a barrel. Russia, whose main export is oil, stands to benefit from a recovery in prices.

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