Gazprom: Dispute Could Harm Gas Supplies

[Neil D]

[:"blue"] This doesn't sound promising....Is war on the horizon over gas prices? [/]

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ROME (AP) - Russia's state-owned natural gas company Gazprom has warned Italian energy company ENI SpA that a tense dispute over gas prices between Russia and the Ukraine could endanger Italy's gas supplies, ENI said Saturday.

A company spokesman said ENI had received a letter from Gazprom's management warning it that if it shut off its gas supplies to the Ukraine as a result of the dispute, Italy would also be cut off.

The spokesman said similar letters had gone out to Gaz de France SA, British Gas and Germany's E.On AG.

The fact that Gazprom had mailed off the letter to ENI was first reported in Italian dailies Corriere della Sera and Il Sole 24 Ore.

However, a possible break in the dispute appeared possible later Saturday, when President Vladimir Putin offered Ukraine an eleventh-hour deal, ordering Gazprom to maintain Ukraine's current fuel price for three months if Kiev agrees to pay more thereafter.

Putin said his offer was only valid until the end of Saturday. There was no immediate indication of whether Ukraine, which is facing a Russian threat to cut off supplies at 10:00 a.m. (0700GMT) Sunday, would accept the deal.

Gazprom has demanded that Ukraine pay US$230 (euro195) -- more than four times the current price of US$50 (euro42) -- per 1,000 cubic meters of gas. Ukraine wants any increase toward world market prices to be phased in gradually, and has said it could now pay US$80 (euro68) per 1,000 cubic meters at the most.

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[Dr. Shane]

I suspect there is a lot more to the story. Sound's like they are trying to control the economy by not allowing the free-market to set the price. Sometimes that has to be done due to shortages but is never good to have as a standard policy.

[Dr. Shane]

Putin sends a shiver through Europe

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The American State Department said that "such an abrupt stop creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure".

The European Union has called an emergency meeting of energy ministers on Wednesday.

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The European Commission says that most countries have between a week and two months' emergency reserves.

Ukraine has upset Moscow by pushing to join the EU and Nato. However, Russia insists that the price rise merely brings Ukraine in line with the price that most of Europe pays: about $240 per 1,000 cubic metres.

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[Naomi]

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Shane said:

Putin sends a shiver through Europe

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............. raises serious questions about the use of energy to exert political pressure".

The European Union has called an emergency meeting of energy ministers on Wednesday.

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"the use of energy to exert political pressure" What a interesting concept!

[Bravus]

Shane - it sounds like what's going on is actually a correction from a controlled price ($50/kL) to the market price ($240/kL). Probably a relic of the Soviet Union - a special price deal, centrally fixed, from Russia to the Ukraine. It'll certainly be interesting to see where it goes... and I do wonder how much gas Ukraine was selling on to its neighbours to the west and making a big profit on.

[Dr. Shane]

Yes, that is what it sounds like to me too. When I stated that it sounded like "they" were trying to control the price I was refering to the Ukraine.

The smae thing will happen in Iraq eventually. Gasoline there is sild way under the market price and eventually will have to be corrected.

[Naomi]

Just tacking on here ... an update:

By Meg Clothier and Nick Antonovics

MOSCOW/BERLIN (Reuters) - Germany warned Russia on Monday that its unilateral decision to cut off gas supplies to Ukraine could harm Moscow's economic relations with the West.

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

Russia, which takes 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.

Ukraine accused Russia of blackmail on Monday, saying Moscow wanted to destabilise its economy. Moscow accused it of stealing supplies destined for Europe -- which Ukraine in turn denied.

Russia said it 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.

German Economy Minister Michael Glos, whose country is Russia's biggest gas customer, said Moscow must act responsibly and show it can 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 quickly affected central Europe. Austria, Hungary, Poland, Romania, Croatia and Slovakia all reported a sharp fall in deliveries.

In Western European markets, the major French provider, Gaz de France, said its Russian gas supplies had fallen by 25-30 percent on Monday morning, while Italy's Eni reported a 24 percent drop.

German power group E.ON said its supplies from Russia were below contractual levels although it could make up the shortfall elsewhere.

ECONOMIC DAMAGE

But 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 drags 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 an emergency European Union meeting is due on Wednesday.

The Kremlin says the dispute is a commercial matter. But Kiev sees it as an attempt to undermine its pro-Western government, with a parliamentary election due in three months.

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

The Russian state monopoly, Gazprom, said enough gas was being piped via Ukraine to supply other countries, and if they were not getting their gas, Ukraine must be diverting it.

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. This annoys Moscow, which does not like any loss of influence over the former Soviet Union.

Ukrainian officials say that is why the Kremlin is punishing Ukraine 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.

(Additional reporting by Olena Horodetska in Kiev, Jo Winterbottom in Milan and Boris Groendahl in Vienna)

[Naomi]

It appears that Russia has fully restored gas supplies.

[The European Union has expressed relief that a dispute threatening gas supplies from Russia is over, but said lessons must be learned from the crisis.

Russia has agreed to start pumping gas to Ukraine again, after turning off the taps in a row over prices.

Lower gas pressure meant supplies fell to states like France, Poland and Italy, which use Ukraine's pipeline.

The EU's energy commissioner said clearly Europe needed a more "cohesive policy on security of energy supply".

Andris Piebalgs had been leading an emergency meeting of EU gas experts when news of the deal came through from Moscow.

We have to think about energy supply security in general, gas supply security... and we have to learn the lessons

Austrian Energy Minister

Martin Bartenstein

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Under the five-year agreement, Ukraine will buy Russian gas, mixed with Central Asian gas, for $95 (£54) per 1,000 cubic metres on average.

[Gregory Matthews]

FYI: We heat our home with natural gas. Our last gas bill went from $70 the previous month to $175. But, my bos who just moved here had a natural gas bill in excess of $500.

He moved into a large home on a mountain, with many glass windows, that was 15 years old, not energy efficient, and that requires him to heat his drive-way on some days so he can drive out of his garage and get on the road. He told me that he had only heated his drive-way three tiems during that billing period. He is looking forward to the next three bills which will come during a time when it is colder than the last time.

On the drive-way: It has a seperate boiler, and heating system not connected to his home. But, his driveway slopes down into his garage, so he has to heat it on some days to either drive onto his property without sliding off into either his house or a tree, and heat it to drive off the property.

[Dr. Shane]

This may be off topic, but do you kow how that works? Did they bury water pipes under his driveway so it is heated by radiant heat?