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Energy Insights: Energy News: Russia says it will restore gas to Europe

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Russia says it will restore gas to Europe


By Meg Clothier and Nick Antonovics  MSN

MOSCOW/BERLIN (Reuters) - A heavily-criticised Russia on Monday promised to restore full gas supplies to Europe after Germany warned that its dispute with Ukraine over deliveries could hurt its long-term credibility as an energy supplier.

With winter demand already high, gas supplies through Ukrainian pipelines to Europe started to fall off dramatically as a result of the Russian blockade, prompting Western fears about insecurity in the energy sector.

Russia, which took over the G8 chairmanship for the first time this month and has sought to promote itself as a reliable energy source, cut its neighbour's gas supplies on Sunday after Ukraine rejected Moscow's demand for a fourfold price rise.

As criticism mounted, the state-controlled gas monopoly Gazprom said it would restore full gas supplies through the pipeline to Europe by Tuesday evening, and that it had piped across an extra 95 million cubic metres of gas.

But it made clear it held Ukraine responsible for the problem.

"With the aim of preventing a possible energy crisis caused by Ukraine illegally taking gas, Gazprom has taken the decision to deliver additional gas into the gas transport system of Ukraine," the company said in a statement.

"We stress that the additional delivery of gas is not designed for Ukrainian consumers but is meant for transit through the territory of Ukraine for delivery to consumers outside the borders of Ukraine.


Ukraine, which denies stealing any gas, accused Russia of blackmail, saying Moscow wanted to destabilise its economy.

Russia said it had had no choice but to turn off the taps after Ukraine refused to sign a new contract that would have ended the preferential price treatment of the Soviet era.

Tiny Moldova, another ex-Soviet state that like Ukraine has shifted its attentions to the West from Moscow, said Russia had all but cut off its gas supplies, also because it refused to accept higher prices.

German Economy Minister Michael Glos, his country Russia's biggest gas customer, said Moscow must act responsibly and show it could be trusted as a supplier.

"Thirty percent of our gas comes from Russia at the moment. That should be increased," Glos told the German radio station WDR. "But it can only be increased if we know that deliveries from the east are dependable.

Washington also stepped in.

"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 on Sunday.

Pipelines taking Russian gas to Europe cross Ukraine, and the cut in supplies to Ukraine fell sharply across central and western Europe.

Germany's Glos said there was no need for German consumers to worry as existing stocks meant there would be no "dramatic" gas shortages even if the dispute dragged on.

Ordinary European consumers are unlikely to be affected in the short term, but any cut-off to industrial users could cause significant economic damage.

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


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

The Kremlin says the dispute is a commercial matter. Kiev says it as an attempt to undermine its West-leaning government ahead of a hotly contested parliamentary election in March.

There was no indication on Monday that talks were going on, or when they might resume.

Investors are watching Gazprom especially closely after President Vladimir Putin signed documents last month freeing up trade in its shares to foreigners, which will make it a must-have emerging market stock.

Gazprom said Ukraine had "stolen" gas destined for Europe worth more than $25 million. Ukraine denied this but said it would take gas if temperatures fell below freezing.

"A scenario aimed at creating economic pressure and blackmail has started," the Foreign Ministry in Kiev said.

Ukrainian President Viktor Yushchenko said he wanted international experts to help with negotiations, calling for a moratorium on price rises while talks go ahead.

The Western-leaning Yushchenko is trying to take his state into the EU and NATO to the irritation of Moscow which deeply resents any loss of influence over the former Soviet Union.

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

Yushchenko says Ukraine can 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 metres from the current $50.

Emotions were running high in Kiev. "It is an unprecedented provocation, it is an attempt to break Ukraine on all issues -- economic, political, social," said Albert Dyachenko, a retired military officer.


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