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QEC: Rises Russian gas disruption spreads across Europe

Russian gas disruption spreads across Europe

CHRISTIAN LOWE
Tuesday, January 06, 2009
MOSCOW — Russia's worsening gas dispute with Ukraine cut supplies on Tuesday to Turkey and a swathe of European countries, threatening disruption as far west as Italy and Germany.

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 firm said he would fly to Moscow on Thursday.

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.

European Union member states Austria and Romania said deliveries were down 90 per cent and 75 per cent, respectively, and German energy firms 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 chief executive officer Bernhard Reutersberg said.

Russia's Gazprom can only guarantee gas supplies to Italy of 7 million cubic metres on Tuesday, or less than 20 per cent of the expected amount, an Italian source close to the matter said. The industry ministry earlier said Rome was planning to increase gas imports form alternative suppliers.

Russia and Ukraine blamed each other for the crisis, which has struck at the height of the European winter and spread alarm across the continent.

Ukraine's neighbour Slovakia will declare a state of emergency, Czech news agency CTK reported. Poland cut gas supplies to industrial clients.

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 Simon Blakey, director of European research at Cambridge Energy Research Associates, said EU countries had seen the crisis coming and could tap large storage reserves.

“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,” he said.

Russia and Ukraine have clashed repeatedly on a range of other issues, particularly the ambition of Ukraine's pro-Western leaders to join NATO.

Russia's Gazprom said Ukraine shut down three Russian export pipelines early on Tuesday and said it was a hostage of Kiev's “irresponsible behaviour”.

“Russia has requested that the gas which was stolen, which is equivalent to 65 million cubic metres (mcm), should be returned,” deputy chief executive Alexander Medvedev said.

But Ukraine blamed Russia, with President Viktor Yushchenko saying Moscow would continue cutting gas supplies to Europe or stop them altogether.

Gazprom says it usually exports about 300 mcm of gas per day to Europe via Ukraine during the winter while Ukraine consumes about 100 mcm. The latest news of pipeline shutdowns suggests exports via Ukraine running at below 100 mcm, which could mean shortages in Europe in a day or so.

The dispute helped push gas prices around 10 per cent higher in London trading on Tuesday.

The disruptions come at a bad time for Europe, which is experiencing a cold snap likely to drive up gas demand.

“As of 3:30 a.m. (0130 GMT) supplies ... to Bulgaria as well as the transit to Turkey, Greece and Macedonia have been suspended,” Bulgaria's Economy Ministry said in a statement. “We are in a crisis situation.”

Bulgaria is particularly vulnerable to the disruptions because, unlike Greece and Turkey, it has no access to alternative gas supply routes.

State firm Bulgargaz told industrial users it was suspending or cutting supplies to a minimum and urged them to switch to alternative fuels such as oil. Two fertilizer companies, Neochim and Agroploychim, were forced to halt production.

The government said people would not be left in the cold, but urged households to start using other means for central heating.

A delegation from the Czech presidency of the European Union met Ukrainian officials in Kiev, while talks between Gazprom and the EU were planned for later on Tuesday in Berlin.

“The situation [with gas supplies via Ukraine to central Europe] ...is getting worse by the minute and we would like to talk about this new situation,” Czech Industry Minister Martin Riman told reporters in Kiev.

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.

The conflict between Moscow and Kiev, now in its sixth day, escalated dramatically on Monday when Russian Prime Minister Vladimir Putin ordered Gazprom to cut deliveries of gas to Europe via Ukraine by about one sixth – the same amount Moscow accused Kiev of siphoning off.

Worries about European gas supplies, coupled with Israel's military operation in Gaza, have pushed oil up to a three-week high close to $50 (U.S.) a barrel. Russia, whose main export is oil, stands to benefit for a recovery in prices.

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