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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