LONDON, Dec 31 (Reuters) - Europe remains vulnerable to the annual threat of disruption to gas supplies from Russia caused by Moscow's regular rows with Ukraine, but circumstances this winter mean it should get through a brief supply cut unscathed.
Russia has said it will turn off the taps to Ukraine at 0700 GMT on Jan. 1 if it does not receive $2 billion in arrears on Wednesday.
Ukraine said on Tuesday it had paid the debt in full but Russian gas export monopoly Gazprom said it had not received the cash. Disputes also remained over the price Kiev will pay for its gas supplies next year.
Economic recession and a mild start to winter have reduced energy demand and left enough heating fuel in Western European storage sites to last a few days without much Russian gas.
But energy supplies could come under threat from a cut lasting much more than a week, analysts said.
Europe still gets about a fifth of its gas from Russia through pipelines crossing Ukraine and has not reduced its dependency since a Kiev-Moscow impasse led to a brief cut in flows to the EU in January 2006.
“You might have thought the episode in 2006 might have provoked the Europeans to get their act together with regards to energy security,” Dieter Helm, professor of energy policy at the University of Oxford said.
“In fact it’s been anything but that. European energy policy on security of supply has made virtually no progress. That’s why we find ourselves in a similar position to then.”
Several liquefied natural gas (LNG) terminals have opened over the last three years offering alternative import options in Italy, Britain, Belgium, Spain and France.
But new European-Union backed pipeline projects aimed at bypassing Ukraine or bringing fuel from other producing countries have made slow progress as individual member states have defended their own interests.
The Nord Stream link, which would run under the Baltic Sea from Russia to Germany, has been opposed by Poland, Sweden and Finland and will not be ready for at least another two winters.
MILDER WINTER
Winter 2005-2006 was one of the coldest in decades and supplies of the fuel used to heat many northern European buildings and fire power stations across the continent were tight even before Russia turned the taps off.
Ukraine’s dire financial state three years later make it more difficult to avert a cut and flows to Europe would probably fall for technical reasons if Ukraine were to stop getting any gas, even if it did not divert any fuel bound for the EU.
But storage levels across most of Europe, including Ukraine, are higher even than they were last winter — one of the warmest on record — because of falling demand.
“People have got high levels of storage, not because they were getting storage gas for dealing with the Russians, but because…the recession has been much bigger than they thought so they are left with spare gas,” Helm said.
Industry observers say this should keep Europe comfortably supplied for what is likely to be a brief cut but gas stocks and LNG cannot make up for losing 20 percent of Europe’s gas over an extended period.
Temperatures have plunged over recent days and are forecast to remain cold into January, driving up residential heating demand.
“If Russia cuts off Ukraine’s gas it is very difficult to see how European supplies (via Ukraine) will not be affected,” Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies said.
GAS DEBTS
Stern and other European gas analysts agreed that, while the global economic crisis had made it much harder for Kiev to settle its debts and agree to pay $418 per 1,000 cubic metres for gas next year, compared to the $179.50 charged in 2008, the recession’s impact on demand should dampen supply jitters a bit.
“Storages are full, industrial production is falling, therefore gas demand is falling. So we are not in a crisis situation here,” Stern said.
Italy, which was particularly affected by the 2006 cut, said last week it saw no risk of supply problems.
According to data from gas network operator Snam Rete Gas, Italy has enough in storage to last more than three weeks without any imports if demand levels are similar this January to the start of 2008.
Stocks across the rest of Europe were still 73-86 percent full on Dec. 22, compared with just 41-78 percent full at the end of 2007, according to gas storage operators.
The European Commission has called a meeting of the gas coordination group for Jan. 9 to evaluate gas supplies for the rest of the winter. If there is still no Russian gas flowing west by then it will probably be too little too late.
(Editing by Anthony Barker)
