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Analysis: Ukraine-Russia gas row escalates

Medvedev gets cold welcome in Western Europe as gas dispute raises temparutes.
by Stefan Nicola
Berlin (UPI) Jan 6, 2009
Russia's gas price row with Ukraine escalated Tuesday, disrupting deliveries to Europe as the continent is suffering from a bitterly cold winter.

Alexander Medvedev knows he needs to soothe his best customer. The No. 2 at the Russian energy giant Gazprom arrived in Berlin Tuesday to meet with German Economy Minister Michael Glos and a representative from the Czech presidency of the European Union.

Whether Glos extended a warm welcome to Medvedev is unsure -- but Berlin certainly didn't. It was 5 degrees Fahrenheit (minus 15 degrees Celsius) in the German capital, and across most of Europe, temperatures were similarly grim, with snow and ice shutting down highways and delaying air travel.

Just as Europe was being hit by a cold spell, the gas price row between Russia and Ukraine escalated, with several European nations reporting a drop in gas deliveries. The European Union imports roughly a quarter of its gas from Russia, some 80 percent of which is pumped through Ukraine.

Russia announced Monday that it would reduce gas sent through Ukraine by 65.3 million cubic meters, the amount Gazprom said Ukraine stole between Jan. 1 and Jan. 4.

The Russian energy giant earlier had stopped the gas intended for Ukraine only, because Kiev refused to agree to Russian price hikes.

But Ukraine said Russia reduced the gas flow by much more -- 200 million cubic meters -- and added Ukraine's state gas firm Naftogaz would divert only as much gas as necessary to keep its generators running.

Russia instead accused Ukraine of having shut down three of four pipelines that deliver gas to Western Europe. Gazprom said Kiev, and not the Kremlin, is to be blamed for the drop in deliveries to Europe.

European nations are indeed feeling the effects of the crisis.

In southeastern Europe, officials said deliveries of Russian gas through Ukraine to Bulgaria, Greece, Macedonia and Turkey had been halted overnight. Austria said its gas deliveries from Russia were down 90 percent, with Poland, Croatia, Romania, Hungary and the Czech Republic also reporting shortfalls.

On Tuesday, even Germany, Europe's largest economy, reported a decrease in deliveries. Germany is Russia's biggest single customer, receiving more than a third of its gas from Russia, either via Ukraine or Belarus.

Berlin said last week it had national reserves to keep German households warm for some time. Yet E.ON Ruhrgas and Wingas, two German gas companies with strong ties to Gazprom, reported Tuesday that gas flows through their pipelines had dropped dramatically.

"Our limits will be tested if this dramatic drop in supply continues and temperatures remain at these very low levels," Bernhard Reutersberg, the head of E.ON Ruhrgas, said Tuesday in a statement.

Germany has since urged Kiev and Moscow to return to the negotiation table. The EU has been eager to stay out of the conflict.

It may not be possible to keep up that position for much longer, however.

Ukraine's economy has long been in deep trouble, and the global financial crisis has only made things worse. The state is nearly bankrupt, and observers say even in the case of a favorable deal with Gazprom, Kiev simply may not be able to pay for Russia's gas right now.

According to German news Web site Spiegel Online, several Ukrainian companies in recent weeks have not paid their energy bills from Naftogaz, and the state has had to rely on some $16.4 billion in loans from the International Monetary Fund to keep Ukraine up and running.

Kiev, with its pro-Western government, now looks to the West for financial aid. Russia wouldn't mind, as long as its bills are paid. Of course, Europe is not exactly swimming in cash right now -- but it may have to get involved, if only to secure its own gas imports in these times of cold.


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