Europe’s gas flowing day after Moscow cuts off Kiev

MOSCOW/KIEV (Reuters) – Russian gas kept flowing to European Union states on Friday, a day after Moscow cut off flows to Ukraine in a contract dispute, but importers across the continent were watching for signs their supplies were faltering.

The European Union’s Czech presidency said it considered the row between Moscow and Kiev to be a bilateral issue and would not step in unless supplies to Europe started to suffer.

Europe gets about a fifth of its gas via pipelines through Ukraine, supplies Moscow said should be unaffected by the cut-off unless Kiev starts illegally diverting the gas.

Energy firms in Hungary, Poland, Bulgaria and Turkey said on Friday their supplies were unaffected, echoing importers in most European countries who earlier reported they had not seen any drop in deliveries.

Europe, where temperatures fell below freezing overnight, has enough gas stockpiled to manage without Russian supply for several days but could face difficulties if any disruption stretched into weeks, analysts said.

After both the European Union and the United States urged a quick solution to the row, Ukraine said its negotiators would fly to Moscow to resume talks that broke down on New Year’s eve. There was no confirmation though that they had arrived.

The row could raise new doubts about Moscow’s reliability as an energy supplier and fuel suspicions in the West — already running high since Russia’s war with Georgia last August — that the Kremlin bullies its pro-Western neighbors.

Russia denies politics are behind the dispute and says it is about prices and debts, but the two ex-Soviet neighbors have clashed over a drive by Ukrainian President Viktor Yushchenko to take his country into the NATO alliance.

Czech officials met an Ukrainian delegation led by Energy Minister Yuri Prodan, who traveled to Prague to offer assurances Ukraine would not disrupt supplies.

“We are not going to interfere until the moment when the pressure of gas will reach some low limits,” Czech EU presidency spokesman Jiri Potuznik after the talks.

Ukrainian President Viktor Yushchenko — anxious that blame for any supply problems does not attach to Kiev — wrote to major EU states and the United States explaining his stance.

If talks do resume between Ukrainian state energy company Naftogaz and Russia’s gas export monopoly Gazprom, the gulf between their negotiating positions is wide.

Alexei Miller, CEO of Gazprom, said on Thursday he wanted Ukraine to pay $418 per 1,000 cubic meters (tcm) of gas, compared with the $179.5 Kiev paid in 2008. Ukraine says the most it can afford to pay is $235.

Gazprom charges about $500/tcm to customers in the European Union, though that is likely to fall by up to half this year. Gas prices track oil and crude has plummeted in value.

PIPELINE PRESSURE

The EU is keen to avoid a repeat of a January 2006 row when Moscow cut off supplies to Ukraine, causing a brief reduction in gas deliveries to other parts of Europe in mid-winter.

Gazprom said it was watching for signs that Ukraine was siphoning off gas destined for customers in Europe.

The company said its engineers were monitoring pipeline pressure at a pumping station in Slovakia, just to the west of the Ukrainian border, and would be able to say if any gas was going missing later on Friday.

Hungary’s Natural Gas Transmission Company, owned by energy firm MOL said it was keeping a close watch on supplies from Russia. “We have not seen a decline in pressure, it is in line with the contracted level,” said spokeswoman Edina Lakatos.

Ukraine’s Naftogaz said it guaranteed uninterrupted supplies of Russian gas to Europe and that it was drawing the fuel from underground stockpiles to meet its own needs. Temperatures in Kiev were about 8 degrees Celsius below zero.

But Naftogaz said it was diverting 21 million cubic meters of gas a day — or about 6 percent of the volumes flowing to Europe — to maintain pressure in the pipeline network, a step Gazprom could interpret as illegal siphoning.

Russia says its row with Kiev is purely commercial. Squeezing more money from Ukraine is particularly pressing for Gazprom now as its finances have been hurt by the global financial crisis and gas prices are on the way down.

A protracted row is likely to hurt the Ukrainian economy, already reeling from a drop-off in investor confidence and steep falls in the hryvnia currency that have not been stemmed by an International Monetary Fund loan.

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