Russia's Gazprom Shuts Off Gas Supplies to Ukraine (Update1)
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Jan. 1 (Bloomberg) -- Russia's OAO Gazprom cut off natural gas supplies to Ukraine after the country refused to pay more than four times 2005's rate for the fuel, deepening tensions between the two former Soviet republics.
State-run Gazprom, which supplies a quarter of Ukraine's gas and uses the country's pipelines to supply the same proportion to western Europe, began to shut off supplies to Ukraine at 10 a.m. local time today, Sergei Kupriyanov, a spokesman for the Moscow- based company, said on its NTV television network. Ukraine has enough fuel stored to last four months, and both sides have said supplies to western Europe won't be affected.
Russian President Vladimir Putin, who campaigned against Ukrainian President Viktor Yushchenko a year ago in Ukraine's so called Orange Revolution, last night offered to delay the increase by three months if a contract was signed by midnight. Yushchenko refused, calling it ``economic pressure.''
``Putin hates Yushchenko and wants to break him down,'' said Sergei Markov, a political consultant who the Kremlin sent to Kiev in 2004 to help former Prime Minister Viktor Yanukovych in his unsuccessful campaign against Yushchenko.
Natural gas prices in western Europe rose after the shut off. The price for immediate delivery on the APX Gas Exchange was up 4.5 percent from yesterday to 67.10 pence per therm ($11.56 per million British Thermal Units) at 1:05 p.m. London time today. The contract trades around the clock.
Germany, France
Supplies of natural gas to German industry and consumers won't be disrupted by Gazprom's decision, said Germany's BGW gas suppliers group, which represents 1,300 gas and water companies. Gaz de France SA, the world's fourth-largest buyer of gas, has taken precautions to protect itself from any knock-on effects, said a spokeswoman for the state-owned utility.
Gazprom wants Ukraine to pay $230 per thousand cubic meters this year, up from $50 in 2005. At the proposed price, Ukraine's 2006 economic growth, forecast at between 5.5 percent and 7.5 percent, would at least halve, Anatoliy Kinakh, head of the country's Security Council, said last week. Gazprom's 2006 sales would swell by $4.5 billion, Troika Dialog, a Moscow-based brokerage, said.
``If Gazprom stops supplying, then our energy system will be unbalanced,'' NAK Naftogaz Ukrainy spokesman Dmytro Marunich said Dec. 30 in a telephone interview in Kiev. ``We'll have to decrease supplies to different consumers.''
Inventories
Ukraine has about 23 billion cubic meters of gas stored in underground tanks, Naftogaz Chief Executive Oleksiy Ivchenko, said in October. That's about enough to supply the country of 47 million for four months, according to Ivan Diyak, head of the Ukrainian Gas Union.
Ukraine uses about 76 billion cubic meters of gas a year, Diyak said Dec. 30. It receives about 28 billion cubic meters from Gazprom, he said, some of which is re-exported. More than half of the total comes from Turkmenistan, fuel that flows north around the Caspian Sea in pipes owned by Gazprom.
Gazprom spokesman Kupriyanov couldn't be reached today when called on his mobile phone by Bloomberg. Neither Ukrainian government spokesman Valentyn Mondrievskynor nor Naftogaz's Marunich could be reached for comment either when Bloomberg called their mobile telephones in Kiev.
Turkmenistan has agreed to sell Ukraine 40 billion cubic meters in 2006 at the same rate Gazprom was charging Ukraine -- $50 per thousand cubic meters -- Yushchenko said two nights ago in a televised address to the nation. Turkmenistan, the second- largest natural-gas producer in the former the former Soviet Union, had sought to increase the price to $60 per 1,000 cubic meters, from $44 now.
Pipelines
For its part, Gazprom, which owns about a sixth of the world's gas reserves, depends on Ukraine to ship its gas to central and western Europe. About three quarters of European gas from Russia crosses Ukraine.
Yushchenko last week rejected an offer from Putin to loan Ukraine $3.6 billion to help meet the higher price, saying his country doesn't accept ``alms.'' Gazprom's transit contract with Ukraine is separate from its supply contract and flows to Europe won't be interrupted, both sides have repeatedly said.
Yushchenko is seeking to strengthen his domestic political position in parliamentary elections this March, the first under his presidency, and orient the nation more closely with western Europe and less toward Russia. He is seeking membership in the European Union and the North Atlantic Treaty Organization. Russia is opposed to those objectives.
Both Putin and Yushchenko are using the ``gas war'' for political gain, said Markov, the Kremlin political consultant.
`Gas War'
``The Yushchenko election committee wants this gas war very much because if the election campaign continues on the path it's on now, Yushchenko won't win,'' Markov said. ``They want to provoke Gazprom to stop supply and organize a huge anti-Russian campaign -- to rally the people around the flag.''
Ukraine's pro-Russian opposition leader Yanukovych, who lost to Yushchenko in the disputed presidential election in 2004, said last week that the U.S. Central Intelligence Agency engineered the gas dispute to help Yushchenko in the March elections. The feud worsened after Yushchenko met with CIA Director Porter Goss in Crimea, said Yanukovych, a former prime minister, on Russian state television.
Gazprom charged consumers in western European countries including Germany and Italy an average of $135 per thousand cubic meters in the first nine months of 2005 and expects that average to almost double to $255 in 2006. It plans to sell about 151 billion cubic meters of gas in western Europe in 2006, up from an expected 145 billion in 2005, Deputy CEO Alexander Medvedev said in November.
European Union energy officials are scheduled to hold an emergency Jan. 4 to deal with a possible disruption of gas supplies.
``Russia is risking losing credibility as a reliable energy supplier by cutting off supplies to an external customer on the same day it takes over as leader of the G-8,'' Chris Weafer, chief strategist at Alfa Bank in Moscow, said two days ago. Putin took over the rotating chairmanship today and has said he intends to use the position to promote energy stability in world markets. |
