MOSCOW/KIEV, Jan 1 (Reuters) - Russia's Gazprom gas export monopoly cut off supplies to its neighbour Ukraine on Thursday over a contract dispute, raising the spectre of disruptions for gas consumers in the European Union.
Gazprom said shipments to Europe via Ukraine should not be affected by the cut-off. It was triggered by the collapse of talks over unpaid gas bills and the price Kiev will pay Russia for the fuel this year.
Analysts say the Gazprom supply cut to Ukraine will have a smaller impact than during a similar row in 2006 because Ukraine has enough reserves to ride out a standoff and keep shipping Russian transit gas to Europe.
WHAT HAPPENED TO THE DEBT?
Ukraine has said it paid off in full debts owed for gas supplies until the end of the year. Its state energy company Naftogaz says it has paid $1.52 billion to intermediary RosUkrEnergo.
Gazprom said the debts were worth over $2 billion. It confirmed RosUkrEnergo — its 50/50 intermediary gas venture with two Ukrainian businessmen – received the $1.52 billion but says Gazprom itself has not received that money.
AND THE SUPPLY AGREEMENT?
Ukraine now pays $179.5 per 1,000 cubic metres (tcm) from $50 in 2005. After threatening to more than double the price to $400, Gazprom is now offering Kiev to sell gas at $250 per tcm.
Ukraine says that is too high, and is instead proposing paying $201. Kiev has also said if the price increases, Russia should also pay more in transit fees for allowing Gazprom to ship gas across its territory.
Ukraine argues its gas bill should be lower because global oil prices have fallen dramatically in the past six months. Gazprom itself expects European prices to fall to $250-$300 by mid-2009 from $500 now.
Ukraine cites an October agreement between Prime Minister Yulia Tymoshenko and Russia’s Prime Minister Vladimir Putin that stipulates Ukraine will pay market prices only in three years.
Ukraine could pay a lower price if it offers a larger slice of its domestic market to Gazprom, which already supplies a seventh of the market directly, Ukrainian media said.
Keeping RosUkrEnergo in bilateral gas trade could also help.
Gazprom’s critics say RosUkrEnergo raises questions over property redistribution, while Gazprom says it needs the firm to manage supplies, which come from different sources.
WHAT HAPPENS NOW THE GAS IS CUT?
Analysts had said stopping exports would tarnish Gazprom’s image as a reliable supplier to Europe.
But there is more than Russia’s reputation at stake — it needs export revenues more than ever, as oil prices fall, the rouble depreciates and the government spends its cash pile on supporting the economy.
Ukraine has plenty of stored gas to help it ride out a Russian cut-off. Naftogaz says it has 17 billion cubic metres in storage, 22 percent of Ukraine’s annual consumption. It says RosUkrEnergo has a further 11 bcm.
On top of that, Naftogaz says Ukraine simply needs less gas at the moment as the economic crisis has reduced industrial energy consumption by 25 percent.
However, while officials have said all transit obligations will be met, Naftogaz says it has no intention of using its reserves to ensure Russian gas gets through to Europe.
It says 7 billion cubic metres of “technical” gas are needed inside pipelines to keep the system operational. (Writing by Sabina Zawadzki and Dmitry Zhdannikov; Editing by Charles Dick)
