Gas dispute causes supplies to plummet

 

THE EU demanded a swift resolution to the energy dispute between Russia and Ukraine yesterday, as gas supplies to freezing areas of central Europe and the Balkans plummeted.

Bulgaria and Serbia said they were in a "critical" situation and Slovakia announced emergency measures as governments across the region scrambled to deal with the fallout of Kiev's refusal to pay its alleged fuel debts to Kremlin-controlled energy giant Gazprom.

Gazprom stopped pumping gas to Ukraine for domestic consumption on New Year's Day, but continued exporting gas to EU states through pipelines that cross Kiev's territory. Moscow then accused Ukraine of stealing that fuel, and on Monday announced a reduction in EU-bound exports through Ukraine.

Both countries blamed each other for yesterday's dramatic drop in gas flow, which saw a complete cessation of Russian gas supplies through Ukraine to Bulgaria, Hungary, Greece, Turkey, Romania, Serbia, Bosnia and Macedonia, and falls of over 50 per cent to France, Austria, Croatia, Italy, Slovakia, Czech Republic, Slovenia and Poland.

Germany also received less gas than usual, but did not reveal the size of the drop. Some countries continued to receive Russian gas through pipelines crossing Belarus and Turkey.

"There is no reason to blame Russia or Gazprom . . . We became hostage to the irresponsible behaviour of the transit country," insisted Gazprom's deputy chief executive, Alexander Medvedev.

Gazprom admitted reducing fuel supplies but blamed the sharp fall in exports on Ukraine's alleged decision to close three pipelines. Officials in Kiev, meanwhile, said Gazprom had abruptly stopped pumping gas through the system.

"There were no warnings from the Russian side on cutting deliveries," said Oleh Dubina, the head of Ukrainian state energy firm Naftogaz.

Russia is regularly accused of using its energy riches to manipulate states that refuse to bend to its will, and it relies heavily on oil and gas revenues.

Analysts note that the rise in oil prices partly caused by the Ukraine crisis will help replenish Kremlin coffers drained by the global economic downturn. Crude oil hit a one-month high above $50 a barrel yesterday.

The EU has been loath to intervene in a dispute between Russia, its main energy supplier but a prickly political partner, and Ukraine, where it backs pro-western leaders who want to end the Kremlin's long-standing domination of their country.

But the sudden drop in gas flow, during a deep cold spell across Europe, prompted a sharp response from the Czech Republic, the current EU presidency holder.

"This situation is completely unacceptable," it said in a statement, complaining that the gas disruption had occurred "without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities".

Czech prime minister Mirek Topolanek said the EU might resort to the "extreme option" of holding a three-way energy summit with Russia and Ukraine if they failed to resolve their dispute, while his deputy Alexandr Vondra demanded that the two sides find a solution to the crisis this week.

Mr Dubina said he would fly to Moscow for talks tomorrow.

The two sides are utterly at odds over who is to blame for the crisis, however, with Kiev refusing to pay its alleged debt to Gazprom and rejecting Russia's suggested terms for a new gas deal.

Most European countries say they have enough gas in storage to cover at least a few weeks of disruption, but several have urged factories and municipal buildings to switch to other fuels such as oil.

"We are in a crisis situation," declared the Economy Ministry in Bulgaria, which relies on Russia for all its gas.

President Georgy Parvanov suggested that Bulgaria might be allowed to reactivate one of its nuclear reactors in Kozloduy, which the EU ordered shut down in 2007 over safety concerns.

Slovakia's state gas importer declared a state of energy emergency, which allows it to cut deliveries to consumers if necessary.

And in Serbia, gas industry official Dusan Bajatovic said the situation was "critical".

"Major industrial consumers are going to be the most affected by this crisis - they didn't have time to look for alternative fuels," he said.

The level of gas reserves held by each EU member state vary considerably, with France estimated to be able to store up to 122 days of gas, Germany 99 days and Britain about 15 days.

Ireland can store up to 12 days of gas reserves, although it is not reliant on Russia for its gas supply.

Instead it imports most of its gas from Britain, which sources gas from its North sea fields and also imports gas from Norway.

A spokesman for the Commission for Energy Regulation in Ireland said yesterday it was monitoring the Ukraine-Russia dispute and its effect on the gas market.

He said Ireland would not be totally immune from the impact of a long dispute even though it relies principally on British and Norwegian gas.

"The longer it goes on, the more likely that there may be an impact on gas prices in particular. That is why it is important that we remain up to date on this," he said.