By Stephen Bierman and Eduard Gismatullin
Jan. 13 (Bloomberg) -- OAO Gazprom Deputy Chief Executive Officer Alexander Medvedev said Ukraine is blocking Russian gas flows to Europe, just hours after supplies were resumed.
Gazprom notified the European Commission of Ukraine’s “unreasonable” actions and may declare force majeure on shipments, Medvedev said today in a conference call with reporters. NAK Naftogaz Ukrainy, the state energy company, said there wasn’t enough pressure in the pipelines to pump gas.
Gas prices in the U.K., Europe’s biggest market, rebounded on concern that supply disruptions to at least 20 nations won’t be eased anytime soon. Gazprom, the Russian supplier of a quarter of the continent’s natural gas, had attempted to resume deliveries suspended for a week after European Union observers began monitoring transit at metering stations in Russia and Ukraine under an accord signed yesterday.
“It’s not a surprise that the agreement has already fallen apart,” Moscow-based Alfa Bank Chief Strategist Ronald Smith said. “This morning we were already getting signals that there was no agreement on who would provide the gas to power the turbines” in the Ukrainian pipeline network, he said.
The EU said “little or no” gas is currently flowing to the 27-nation bloc through Ukraine. “This situation is obviously very serious and needs to improve rapidly,” EU spokeswoman Pia Ahrenkilde-Hansen told reporters in Brussels.
Halted Flows
Gazprom halted transit flows through Ukraine on Jan. 7 after accusing Ukraine of taking gas for its own use, a charge the country denies. The cutoff has renewed calls for the EU to diversify its sources of energy away from Russia. Negotiations between Russia and Ukraine over gas prices and transit fees in the former Soviet republic remained stalled even after yesterday’s EU-brokered agreement.
Gazprom accused Ukraine of diverting some of the restored supplies for its own domestic use and shutting down an export corridor.
“The door is closed as before,” Medvedev said. “We did not close the door. We are doing our utmost to resume flows to our customers. Unfortunately we can’t transit gas physically through Ukraine.”
The Ukrainians may be “dancing to the music which is being orchestrated not in Kiev but outside the country,” Medvedev said, referring to the U.S.
‘Too Low’
Naftogaz said it hasn’t been able to “technically” pump Russian gas to Europe. “The pressure in the pipeline is too low,” company spokesman Valentyn Zemlyanskyi said in a phone interview.
U.K. gas for delivery next month advanced 1.7 percent to 56.65 pence a them as of 12:49 p.m., according to broker Spectron Group Ltd. Prices surged 24 percent last week after Gazprom turned off the taps.
“The EU monitors are in place but Russia and Ukraine have yet to agree on how compressor stations powering the Ukrainian pipeline network will be fueled,” Maria Radina, an oil and gas analyst with UBS AG, said by telephone from Moscow earlier today. “This will likely be the next issue in Russia and Ukraine negotiations.”
The Russian order to pump about 76 million cubic meters of fuel today toward the Balkans, Turkey and Moldova was earlier broadcast on state television.
‘Blackout’ Warning
Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows via Ukraine and supplies to Ukraine’s domestic market were suspended Jan. 1. Slovakia warned yesterday it was “on the brink of blackout,” prompting the government to consider restarting a nuclear power plant in violation of EU rules.
Gazprom has lost $800 million in the dispute, according to Russian Prime Minister Vladimir Putin.
Medvedev said yesterday that Gazprom is “open to discussions” to find a solution to the pricing issue for Ukraine this year. Oleh Dubina, the Naftogaz head, said on the weekend talks had failed to produce a result. Gazprom offered a price of $450 per 1,000 cubic meters after it said Ukraine rejected an offer, subsequently withdrawn, of $250. Medvedev said $450 was for the first quarter.
Gazprom’s prices to European customers under long-term contracts typically lag behind prices for crude and oil products by about six to nine months. Crude has fallen by more than 70 percent since reaching a record in July. Ukraine paid Russia $179.50 per 1,000 cubic meters for gas last year under a separate arrangement.
Market Prices
The Russian company maintains it has a transit contract with Ukraine through the end of 2010 at $1.70 per 1,000 cubic meters per 100 kilometers (62 miles). Putin has said Russia would consider an increase in the price to European market levels of $3.40 should Ukraine accept European prices for gas supply. Russia isn’t paying for transit now, Ukrainian Energy Minister Yuriy Prodan said.
Relations between Ukraine and Russia have become strained over efforts by the former Soviet republic to join the EU and the North Atlantic Treaty Organization. The gas dispute has come as Timoshenko and Yushchenko, who have clashed over economic policy, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.
In 2006, Russia turned off all gas exports to Ukraine for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.
To contact the reporters on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net
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