Russ Oil-Gas

20 January 2009 - Upstream OnLine - Russian gas started reaching Europe via Ukraine today for the first time since a contract row between Moscow and Kiev cut supplies to about 20 European countries two weeks ago. Slovakia, which borders Ukraine, said gas had started arriving, though Kiev said it could be up to 36 hours before supplies reach other parts of Europe, where some countries have been forced to ration supplies to customers. "Gas is not only flowing in the direction of Europe but it is flowing to Europe," Alexander Medvedev, Russian gas giant Gazprom's deputy chief exectuive, told a conference call with reporters. Ukraine confirmed it was receiving gas from Russia and said it would deliver it to Europe as quickly as possible. In European Union member Slovakia - which was badly hit by the cut-off and briefly considered re-starting a Soviet-era nuclear reactor - Economy Minister Lubomir Jahnatek said supplies had started arriving. The gas dispute had reflected political tension between Moscow and Kiev, with Russia opposed to formerly Soviet Ukraine's aspirations to join the Nato military alliance. Gazprom said that under the new contract Ukraine would pay $360 per 1000 cubic metres of gas in the first quarter of this year, a sharp rise on the $179.5 per Mcm that Kiev was paying for Russian gas last year. The new price is likely to come down later this year as gas tracks falling oil prices, but it could still be a huge burden for a Ukrainian economy struggling with debt and sharp falls in the hryvnia currency. Tymoshenko said on Monday she expected the average price over this year to be between $230 per Mcm and 250 per Mcm. 20 January 2009 - Upstream OnLine - Gazprom chief executive Alexei Miller warned if Ukraine were to fall behind in its payments, the company would raise the price and demand Kiev pay for all its gas in advance - sanctions that could cripple the fragile Ukrainian economy. Fears persist that bitter infighting in Kiev could cause the deal to unravel. Aides to Ukrainian President Viktor Yushchenko - a bitter rival to Tymoshenko - accused her of signing an agreement that would hurt the economy. But Yushchenko's deputy chief of staff Oleksander Shlapak said the president lacked the legal authority to annul the deal. "The prime minister has taken on herself all responsibility for these decisions," Shlapak said. Austria's OMV said Russian gas could reach its hub in Baumgarten, in the east of the country, on Wednesday. A Turkish Energy Ministry source told Reuters the flow of Russian gas via Ukraine into its pipeline system would begin on Wednesday and should be back to normal on Thursday. Russia will also resume pumping gas to Ukraine itself, cut off on New Year's Day and surviving on dwindling stockpiles. Oil prices fell to just over $33 a barrel today, partly in response to the resumption of gas supplies through Ukraine. The gas disruptions had driven up demand for oil products, used as alternatives to gas in heating and power generation. Even once flows to Europe resume, the effects are likely to linger. Russia's standing as an energy supplier is under renewed scrutiny and Europe is exasperated that its gas flows were blocked by squabbling between Moscow and Kiev. Russia provides about a quarter of Europe's gas requirements and pumps 80% of this via Ukraine. In Bulgaria, almost entirely dependent on Russian energy, many households were left without adequate heating and hundreds of companies have had to scale back production. "The impacts on the Bulgarian economy are catastrophic," Economy & Energy Minister Petar Dimitrov told Reuters in an interview. " ... the impact very much resembles that of a terrorist attack." The EU should let Bulgaria reopen two Soviet-era nuclear reactors to offset damage caused by the gas cut-off, he said. Russia cut flows to Ukraine itself on 1 January after the two sides failed to agree a 2009 supply contract. Six days later, export flows to Europe through Ukraine also ceased after Russia accused Kiev of siphoning off gas intended for export. Ukraine's pro-Western leaders denied stealing gas, and countered that Moscow was trying to blackmail European customers by halting gas supplies.