By Maria Ermakova and Daryna Krasnolutska
Jan. 8 (Bloomberg) -- Russia and Ukraine prepared to resume talks on a dispute over natural gas prices which has disrupted shipments to Europe for the second time in three years, as freezing weather boosted power demand across the continent.
Russian President Dmitry Medvedev said yesterday Ukraine should agree to pay a market price for natural gas as the European Union sought to broker talks. Each side blamed the other for the cutoff in deliveries, which halted flows of Russian gas through Ukraine to Europe yesterday. Slovakia, Hungary and Bulgaria were among countries restricting supplies to customers.
The shutdown renewed calls in Western Europe to develop nuclear power plants and alternative sources of energy. Gas supplies are dwindling as temperatures as low as minus 25 degrees Celsius (minus 13 degrees Fahrenheit) in Germany and Poland spur demand for the fuel this week. U.K. natural gas prices have climbed 20 percent this week.
“They should come to an agreement pretty soon,” said Christian Kleindienst, senior credit analyst at UniCredit SpA in Munich. “The stakes are too high and neither side’s bargaining position is strong enough.” A deal could take place by “mid to end-January.”
Medvedev spoke with his Ukrainian counterpart Viktor Yushchenko by phone yesterday, the first high-level contact between the two sides since negotiations broke off on Dec. 31. Medvedev said Ukraine should get no discounts on its gas and should pay its full debt to Russia as soon as possible.
Market Price
EU Energy Commissioner Andris Piebalgs will meet with OAO Gazprom Chief Executive Officer Alexei Miller today in Brussels. Oleh Dubina, who heads Ukrainian utility NAK Naftogaz Ukrainy, will also travel to Belgian capital today. Naftogaz said it’s “ready to hold constructive talks with Gazprom wherever, the place doesn’t matter.”
Gazprom said yesterday it suspended transit supplies after discovering that Ukraine wasn’t shipping fuel intended for European customers to its final destination. Its European customers receive 80 percent of supplies through pipelines that cross Ukraine. The company said its overall deliveries to Europe were cut by about 60 percent yesterday.
European spot natural-gas prices declined amid signs cold weather may give way to warmer temperatures in coming days, reducing heating demand. Gas for next-month delivery in the U.K., Europe’s biggest gas market, dropped 4 percent to 58.3 pence a therm at 5:02 p.m. London time, according to broker ICAP Plc. That’s equal to $8.88 a million British thermal units.
‘Real Problems’
European Commission President Jose Barroso said “real problems” may arise unless transit flows resume through Ukraine. Russian and Ukrainian officials have accepted a proposal to have international monitors verify gas transit, Barroso told a press conference in Prague yesterday.
Hungary and Slovakia are most exposed to the stoppage because they depend more on the fuel for energy than other European nations, according to UniCredit SpA. The dispute has already lasted longer than a similar conflict in January 2006 which interrupted fuel shipments to Europe.
Hungary ordered industrial users of natural gas to switch to other fuels, a day after it stopped receiving Russian supplies through Ukraine. Turkish electricity producers cut output from their gas-fired power plants to conserve fuel.
Slovensky Plynarensky Priemysel AS, Slovakia’s dominant gas company, said it would curb deliveries to the largest industrial users. Affected companies include refiner Slovnaft AS, which consumes more than 1 million cubic meters of gas a day.
Austrian Stocks
OMV AG, Austria’s largest oil and gas producer, said it’s able to meet demand by tapping stockpiles, sourcing imports from elsewhere and using its own output. The Czech Republic’s RWE Transgas is using supplies from Norway and underground storage.
E.ON AG, Germany’s largest utility, increased the amount of gas it gets from non-Russian providers, taking “more than usual” from Norway and the Netherlands.
Eni SpA, Italy’s biggest energy company, reported a “substantial” interruption in gas supplies from the TAG pipeline yesterday.
Norway, the biggest supplier of gas to the EU after Russia, is producing natural gas at “more or less” full capacity and can do little in the short term to increase output, Deputy Petroleum and Energy Minister Liv Monica Stubholt said.
The Czech Republic, which holds the rotating EU presidency, called a meeting of ministers in Brussels today with Gazprom and Naftogaz representatives to seek a “technical solution.”
‘End of Tunnel’
“There’s a certain light at the end of the tunnel of an otherwise very complicated bilateral situation,” Czech Prime Minister Mirek Topolanek said yesterday.
Gazprom delivered about 170 million cubic meters of gas to Europe yesterday, compared with 420 million to 450 million cubic meters a day normally, the company’s Deputy Chief Executive Officer Alexander Medvedev said on a conference call yesterday. Gas is being supplied through Belarus and from underground storage.
Since 2006, European nations have diversified their sources of fuel and improved inventories. They are also using more gas, the source of 24 percent of the world’s energy consumption in 2007, to reduce emissions linked to global warming.
In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, and also cut shipments by 50 percent last March during a debt spat.
IMF Bailout
Russia cut shipments intended for Ukraine’s domestic market Jan. 1, and accused Ukraine of siphoning off gas destined for other buyers. Gazprom has warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues.
Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine, which paid $179.50 for its Russian gas last year, rejected a Gazprom offer last week of $250 for 2009 and says $201 would be fair.
Ukraine’s political leaders, Yushchenko and Prime Minister Yulia Timoshenko, are grappling with a financial crisis that has forced it to seek a $16.4 billion International Monetary Fund bailout.
To contact the reporters on this story: Maria Ermakova in Moscow on mermakova@bloomberg.net; Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net
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