By Daryna Krasnolutska and Rachel Graham
Jan. 6 (Bloomberg) -- Russia’s natural gas dispute with Ukraine worsened, shutting off fuel shipments to Europe for the first time in three years and driving energy prices higher.
Russia and Ukraine blamed each other for the cuts as gas shipments from OAO Gazprom through Ukraine plummeted and deliveries to the Balkans were halted at the Romanian border.
The dispute, a repetition of a 2006 conflict, caused U.K. gas for immediate delivery to jump as much as 18 percent and led Bulgaria to call for emergency limits on fuel use. Three years ago Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, while it also cut shipments by 50 percent in March during a spat over debt.
“Gazprom does not have much of a pressure mechanism left except for further cuts,” Eugen Weinberg, senior commodity analyst at Commerzbank AG in Frankfurt, told Bloomberg Television. He said Ukraine is in a “comfortable” position. “Their gas reserves are enough for them to keep functioning.”
Gazprom Deputy Chief Executive Officer Alexander Medvedev told Bloomberg Television that Ukraine shut three export pipelines and said “unilateral action of the Ukrainians” caused the shortfall. NAK Naftogaz Ukrainy spokesman Valentyn Zemlyanskyi said Gazprom cut shipments to Europe through Ukraine to 74 million cubic meters, compared with about 300 million normally.
Bulgarian Supplies
The moves came after Russia and Ukraine agreed yesterday to resume talks on their dispute and as Gazprom warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1. Naftogaz Chief Executive Officer Oleh Dubina said he would travel to Moscow on Jan. 8 for talks on the dispute.
Russian gas flows to Bulgaria, Turkey, Greece and Macedonia were halted at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said.
Gas shipments at the Ukraine-Romanian border were stopped at 3:30 a.m. today, the Bulgarian ministry said. Gazprom pumps 17.8 billion cubic meters of gas a year through Bulgaria to the four countries under a 30-year contract signed in 2006. Bulgaria consumes about 3.5 billion cubic meters of that volume.
Bulgaria raised supplies from its only gas storage facility at Chiren today to 4.3 million cubic meters and called for emergency measures, the ministry said. Russian gas flows through Ukraine and then Romania to the southern Balkan states.
German Cuts
U.K natural gas for immediate delivery gained 18 percent to 70 pence a therm, a two-month high, as of 10:11 a.m. London time, according to broker Spectron Group Ltd. That’s equal to $10.29 a million British thermal units. A therm is 100,000 Btus. Gas for tomorrow climbed 14 percent to 69 pence. Gas for delivery tomorrow jumped 15 percent, also to 70 pence a therm.
Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, predicted the dispute will be resolved by Friday while saying in a phone interview a resolution is “unlikely” before then because of a national holiday in Russia.
E.ON Ruhrgas AG, the natural gas unit of Germany’s biggest utility, said it would experience “significant” cuts in gas deliveries, with Russian supplies piped through Ukraine forecast to fall to zero at the Waidhaus gas transit point on the German- Czech border in the course of the day.
Austrian Shortfall
The utility said it would still be able supply clients as it sourced the fuel from and through other countries. Germany’s BDEW energy industry group said today that the same is true of its rivals. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1.
“Our options will also reach their limits if these drastic supply cuts continue and temperatures stay at their very low level,” Bernhard Reutersberg, Chief Executive Officer of E.ON Ruhrgas, said in a statement.
OMV AG, central Europe’s biggest oil company, reported a “significant” cut in Russian gas supplies today. It said Russia warned overnight of a 30 percent to 40 percent reduction in supplies to the Baumgarten hub today, and further cuts in the early hours of this morning meant 10 percent of Russian gas was being delivered. It said supplies to Austrian customers were unaffected for now.
Czech Prime Minister Mirek Topolanek said a dispute between Russia and Ukraine on gas prices is becoming “more serious” and the effects are spreading across Europe.
Romanian Flows
Other countries can’t be “held hostage” by Russia over gas supplies, Topolanek told reporters in Prague today. Ukraine may have to compromise on gas fees in the disagreement, he added. The Czech Republic holds the EU’s rotating presidency for the first six months of the year.
“Ukraine is trying to raise stakes as highly and as quickly as possible to force the EU to the negotiating table,” Chris Weafer, chief strategist at UralSib Financial Corp., said by phone from London. “It would suit both Ukraine and Russia to have the EU as a mediator.”
Russian gas deliveries to Romania fell 65 percent, with supplies through the Isaccea 2 entry point cut entirely at 3:05 a.m. today, Romanian Economy Minister Adriean Videanu told reporters in Bucharest. The country also gets gas from a second entry point.
Croatia’s supply of natural gas from Russia via Ukraine was halted this morning, following an 18 percent drop in deliveries yesterday, according to Croatian national broadcaster HRT, which cited officials at energy company Ina Industrija Nafte d.d.
Gazprom Demands
Russian natural gas supply to Italy is decreasing, an official at Italy’s Industry Ministry said today. The ministry can’t yet estimate by how much deliveries have been reduced.
Gas stockpiling in Italy is near maximum levels, at above 90 percent, and the country has arranged measures to increase supply from other countries including Libya, Algeria, the Netherlands and U.K., the Rome-based official said.
BH-Gas, Bosnia-Herzegovina’s state-owned natural-gas company, said supplies of the fuel from Russia are 25 percent below normal levels. Russian deliveries to Serbia have also dropped by the same amount, Almir Becarovic, director of BH-Gas, said today by telephone from Sarajevo.
Gazprom Chief Executive Officer Alexei Miller told Russian Prime Minister Vladimir Putin in a meeting yesterday that Gazprom intended to reduce gas deliveries to the Ukraine border and said it would buy gas on the market to ensure European customers were supplied. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.
EU ‘Mission’
“If this continues then the debt will soon come to billions of dollars,” Miller said. Gazprom says it is still owed $614 million for 2008 supplies, even after it receives a $1.5 billion payment in transit, a claim Ukraine rejects.
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 paid $179.50 for its Russian gas last year and says $201 would be fair in 2009.
The European Union sought to help defuse the conflict, sending a delegation headed by Czech Industry Minister Martin Riman for talks with Ukrainian officials.
“We have a mission in the region,” European Commission President Jose Manuel Barroso told reporters yesterday in Lisbon. “I hope the situation will be resolved.”
The EU delegation met Ukrainian Energy Minister Yuriy Prodan, Naftogaz’s Dubina and presidential advisers today.
There were “no warnings” from the Russian side on cutting deliveries, Dubina said at a press conference in Kiev. “They probably decided to stop deliveries to Europe via Ukraine completely.” He said Ukraine urged the EU to mediate in talks.
Medvedev was due to travel to Berlin to meet German Economy Minister Michael Glos at 3 p.m. local time today, according to the German Economy Ministry. Medvedev would then meet a Czech- led EU delegation at 5 p.m., the Czech EU presidency said in a statement.
To contact the reporters on this story: Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net; Rachel Graham in London on graham13@bloomberg.net
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