Russ Oil-Gas

MOSCOW, January 1, 2009 (RIA Novosti) - Russia cut off natural gas supplies to Ukraine on Thursday after last-ditch talks on a 2009 contract failed late on Wednesday, but increased shipments to other European states, gas monopoly Gazprom said. A similar dispute between the two ex-Soviet neighbors resulted in a brief cutoff of supplies to Ukraine in 2006, when shortages were reported in some Eastern European countries. Russia accused Ukraine of siphoning off Europe-bound gas. "Deliveries to Ukraine were cut in full at 10:00 a.m. on January 1," Gazprom said. Speaking at a news briefing at Gazprom's central office, spokesman for the state-controlled energy giant Sergei Kupriyanov said supplies to European consumers via Ukraine had been increased by 20 million cubic meters to 326 million a day, while supplies to Ukraine had been cut by 110 million cu m. Kupriyanov said shipments via Belarus, another major transit country for Russian gas, had also been increased by 20 million cu m a day. A spokesman for Ukraine's national oil and gas company Naftogaz confirmed that gas supplies had been cut. "We have noticed a reduction in pressure," Valentyn Zemlyanskiy said adding Ukraine was continuing to pump gas in transit onto Europe in full. Gazprom said on Wednesday Ukraine's Naftogaz had threatened in a letter addressed to the monopoly that it could start confiscating Russian gas meant for European Union consumers after January 1, if no new contract was agreed for 2009. The EU urged on Thursday both sides to engage in further talks. "All existing commitments to supply and transit must be honored," the EU president, the Czech Republic and the European Commission said in a joint statement. Frequent gas disputes between Moscow and Kiev have raised concerns in Europe about the reliability of Russia as a supplier. Ukraine transits about 80% of Russian gas, a major source of revenue for Moscow, bound for the EU. Europe buys a quarter of its gas needs from Gazprom. EU consumers have not reported a shortfall in gas deliveries so far. "Gas is being supplied in line with the contract, pressure in the pipeline on the Polish-Ukrainian border is within norm at the moment," Poland's state-run gas company PGNiG said. Kupriyanov said Gazprom had urged Ukraine to continue the talks, but said the Ukrainian delegation had not yet arrived. Moscow and Kiev have failed to settle their dispute over Ukraine's gas debt, which Gazprom puts at $2 billion, and over the price for next year. Gazprom offered Ukraine a price of $250 per 1,000 cu m for gas in 2009, about half the current average price in Europe. Ukraine, which paid $179.5 last year, said it was prepared to pay $201, however. The country's economy has been devastated by the ongoing global financial crisis. Russian Prime Minister Vladimir Putin said on television on Wednesday that the price of $250 was tantamount to "humanitarian aid" to the "fraternal" Ukrainian people as Russia would buy Central Asian gas it re-exports to Ukraine and other consumers at about $340 per 1,000 in 2009. Putin blamed political squabbles between Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko - both expected to run in presidential elections due late this or early next year- for failure to reach a timely gas deal with Russia. Tymoshenko was expected to fly to Moscow late Wednesday, but a source in Kiev said at the last moment that the trip had been canceled. "Tymoshenko was ready to fly to Moscow...to protect Ukrainian interests and to solve the gas issue in talks with Russian participants," a source in Kiev said. "The prime minister's trip to Moscow would have undermined the Ukrainian president's position." On Thursday, Tymoshenko's energy adviser said speaking live on Ekho Moskvy radio station in Moscow that the gas contract would be signed by Orthodox Christmas celebrated on January 7. "By Christmas we will have all the contracts signed," Oleksiy Hudyma said. "What is important that the process is continuing, the delegations are preparing for a meeting to carry on dialogue."