Russ Oil-Gas

27.01.2006 The Moscow Times - by Catherine Bolton - World leaders increased calls for reducing Europe's dependency on gas supplies from Russia on Thursday as freezing temperatures forced cutbacks from Gazprom for the eighth day running and Russia continued to snipe at Ukraine, a vital transit country. As political and business leaders gathered in Davos for the World Economic Forum, Poland's prime minister and U.S. billionaire George Soros said the recent disruptions in gas supply meant Europe should find alternate sources. Soros called Russia's recent standoffs with Ukraine and Georgia over prices "a wake-up call for Europe" as Russia used its might to gain leverage over its neighbors, while Polish Prime Minister Kazimierz Marcinkiewicz said his country wanted to diversify supplies. "Trust is measured on practice and the practice we have seen in January of this year was not promising," Marcinkiewicz told reporters in Davos, Reuters reported. He said his country was now considering building a liquefied natural gas, or LNG, plant. Hungary and Croatia followed suit. At a joint session of both countries' Cabinets in Budapest they vowed to reduce their dependency on Russia, and their prime ministers signed a deal Thursday for a new LNG terminal on the Adriatic coast. "We want to do everything possible to become independent in terms of energy supplies," said Croatian Prime Minister Ivo Sanader. But amid the growing search for an alternative to Gazprom, the company hit back by again blaming Ukraine for the cutbacks to Europe. In its strongest statement yet, Gazprom accused Ukraine of illegally taking 326 million cubic meters of Russian gas bound for Europe over Jan. 19-25. Ukraine's maximum daily off-take from the pipeline was 80 million cubic meters, Gazprom said -- an amount equal to Italy's daily consumption. "The cold snap has shown that Ukraine is the only transit state that flagrantly violates international gas business conventions," Gazprom deputy CEO Alexander Ananenkov said in a statement. The standoff between Russia and Ukraine over gas prices earlier this month led to Russia cutting off Ukraine and shortfalls to Europe, which receives 25 percent of its gas supplies from Russia, mostly through Ukraine. Coming so soon after this month's bitter price dispute between Russia and Ukraine, the cutbacks brought on by the region's severe cold snap have only increased Europe's jitters. Italy, which reported a shortfall of 8 percent Thursday, has called on industrial customers to switch to alternate sources of fuel and for domestic consumers to save energy. Meanwhile, Russia's Jan. 4 deal with Ukraine has been looking increasingly shaky since officials on Wednesday again postponed signing the contracts that would give the agreement legal force. While both sides continued to try to hammer out terms, Gazprom has been upping the rhetoric. "We don't plan to put up with the fact that gas destined for European customers is being used in Ukraine," Gazprom spokesman Sergei Kupriyanov told Channel One television earlier Thursday. "We understand it's cold, but Ukraine isn't the only place where it's cold. No one gave Ukraine the right to take more gas than contracted." In Kiev, a spokesman for Naftogaz Ukrainy, Dmitry Marunich, admitted that Ukraine had been taking more gas than it should have done, and said the Ukrainian government, which is trying to crack down on customers who use too much, could face sanctions from Gazprom. "Under intergovernmental agreements, we might have to pay more for this gas," Marunich said. Gazprom declined to comment on what measures Ukraine might face at the end of the month, which is also the deadline for the signing of the contracts underpinning the Jan. 4 deal. Marunich said the deal, as a framework agreement, was not yet legally binding. It would become so after individual contracts were signed, he said. A key sticking point has been the proposed creation of a joint venture to distribute gas inside Ukraine between Naftogaz and Rosukrenergo, the mysterious Swiss-registered gas trader that was granted a monopoly on sales to Ukraine. Questions over Rosukrenergo's ownership have increased the pressure on Ukraine to rethink the deal. Gazprom owns half of Rosukrenergo, while Austria's Raiffeisenbank holds the other half on behalf of unidentified investors. "Before signing this, we should know into whose hands we've signed our energy security for the next five years," said Grigory Nemyria, a foreign policy adviser to former Ukrainian Prime Minister Yulia Tymoshenko. Prime Minister Yuriy Yekhanurov said Wednesday that Rosukrenergo's ownership should become clear in the next 12 to 18 months, when the trader plans to list its shares internationally. But Ukraine's anti-monopoly commission has said it needs to know who the owners are before it can approve the deal. Marunich said, however, the deal would likely be signed by the end of the month. "Ukraine has to have gas supplies," he said.