Russians restore
gas to Europeans But standoff with Ukraine is unresolved
Jan 3, 2006 - International Herald Tribune
Author(s): Andrew Kramer And Dan Bilefsky
Dan Bilefsky of the International Herald Tribune reported from Paris
and Andrew Kramer of The New York Times reported from Moscow. Carter
Dougherty of the International Herald Tribune contributed from
Frankfurt.
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The Russian gas monopoly said Monday that it would restore most of
the natural gas that it withheld from a giant pipeline running through
Ukraine to Western Europe.
The decision does not resolve the crisis but answers European
complaints that its fuel supplies were jeopardized.
Officials of the monopoly, Gazprom, said that they would pump 95
million of the 125 million cubic meters of natural gas that it withheld
from the natural gas flow on Sunday. As the Russians described it, this
was to make up for gas that was not getting to Europe because Ukraine
was siphoning off gas for itself.
Gas deliveries to Europe started to fall dramatically Monday
following the Russian suspension of supplies to Ukraine, fanning fears
about insecurity in the European energy sector and casting a shadow over
Moscow's future relations with its European neighbors.
An executive at Gazprom, the Russian energy giant, accused Ukraine of
diverting natural gas exports intended for Western Europe to satisfy the
needs of the former Soviet republic of 48 million people, with an
economy heavily dependent on cheap natural gas. Ukraine's energy
minister immediately denied the accusation.
Gazprom provides about a quarter of Western Europe's natural gas and
most of that about 80 percent is shipped through a grid of pipelines
that cross Ukrainian territory.
On Sunday, Gazprom reduced the flow into Ukraine by 20 percent,
saying it expected Ukraine to continue shipping the remainder westward.
By Monday, shortages were reported across Europe, with countries
including Austria, Poland, Romania, Hungary, Croatia and Slovakia all
reporting sharp falls in deliveries. Analysts said Central and East
European countries were the most vulnerable because of their dependence
on Russian deliveries and because they have emerging markets that are
less resistant to sudden shocks.
In West European markets, the major French provider, Gaz de France,
said its Russian gas supplies had fallen by 25 to 30 percent, while
Italy's Eni reported a 24 percent drop. The German power group E.ON said
its supplies from Russia were below contractual levels, although it
could make up the shortfall elsewhere.
Serbia was the worst affected, with its gas deliveries cut in half.
Austria's top natural gas supplier, OMV, reported that deliveries from
Russia, which cover roughly 50 percent of the country's demand, had been
reduced by a third. In Italy, where companies already are reporting
lower gas volumes in the north of the country, the industry minister,
Claudio Scajola, called on importers to buy as much gas as possible as a
defensive measure.
A jump in Russia's utility bill to Ukraine is at the heart of the
current conflict. Russia is seeking to charge $220 to $230 per 1,000
cubic meters of natural gas, up from $50. Ukraine's economy has depended
on buying cheap energy from Russia, which provides about a third of its
natural gas supply.
The standoff between Ukraine and Moscow has intensified in recent
days, with Ukraine accusing Russia of blackmail and warning that Moscow
is trying to destabilize its economy. Russia, meanwhile, has accused
Ukraine of stealing gas intended for Europe.
The conflict has raised concerns of widespread supply disruptions
across the Continent at the height of winter. It also has prompted fears
that a supply shortage could result in gas price increases for consumers
and undermine the profitability of high-energy users in sectors such as
chemicals and construction.
William Ramsay, deputy director of the International Energy Agency in
Paris, said an acute supply shortage was unlikely because most West
European countries had excess gas reserves. He said the agency had
conducted a contingency study and concluded that gas- rich countries in
Europe could compensate for declines in other, gas- poor countries if
the crisis continued. Industry experts said Europe was unlikely to
experience a major shock from the crisis since more than two-thirds of
European gas demand was still provided by local resources, with Britain,
Norway and the Netherlands accounting for 80 percent of Western Europe's
gas production.
Supplementary supplies also are provided from countries including
Algeria, Qatar and Nigeria. Still, Norway, Western Europe's biggest
natural gas exporter, has warned that it is already producing at full
capacity and would not be able to make up the shortfall.
European leaders warned that the crisis could harm Moscow's economic
relations with the West. On Monday, German, Italian, French and Austrian
ministers made a joint appeal to Moscow and Kiev to keep gas flows
steady.
Russia, which takes over the chairmanship of the Group of 8
industrialized nations for the first time this month, has been trying to
promote itself as a reliable energy source.
Analysts said that security of the global energy supply was a key
issue on the G-8's agenda and that Moscow's behavior in the standoff
would seriously dent its credibility to set the agenda in this area.
"Moscow is trying to demonstrate that it is a responsible player in
the international system while using political brute force on countries
that are moving outside its sphere of influence and this risks creating
instability," said Walt Patterson, an energy expert at the Royal
Institute for International Affairs. He noted that while Moscow had
insisted on raising prices for Ukraine, it was charging cheaper prices
for Belarus as a reward for its political compliance.
Germany's economy minister, Michael Glos, whose country is Russia's
biggest gas customer, called on Moscow to act responsibly. "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." He
added that Moscow's cooperation was all the more imperative at a time
when it holds the G-8 presidency.
Britain's energy minister, Malcolm Wicks, warned that the dispute
risked undermining trust in Russia as a reliable natural gas supplier.
"One of the big things going on for Russia at the moment is their energy
sources," Wicks said. "But just as Europe is quite dependent on Russia,
let's remember that it works the other way." In Washington, the State
Department already has voiced its concerns that the abrupt halt in the
oil supply from Russia to Ukraine "creates insecurity in the energy
sector in the region and raises serious questions about the use of
energy to exert political pressure." Austria, which on Sunday took over
the EU's rotating presidency, said that the gas dispute between Russia
and Ukraine did not urgently require EU mediation.
Vice Chancellor Hubert Gorbach said Monday that the leaders of Russia
and Ukraine needed to reach an agreement and that the European Union
should get involved only if the situation worsened.
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