Russian Gas Shipments to Europe Through Ukraine Are Halted

By Kateryna Choursina and Lyubov Pronina

Jan. 7 (Bloomberg) -- Russian natural gas exports through Ukraine to Europe halted for the first time in three years, threatening to create shortages as freezing weather spurred demand for power.

The two sides blamed each other for the disruption. OAO Gazprom, Russia’s gas-export monopoly, cut off all gas supplies to Europe through Ukraine at 7:44 a.m. Kiev time today, according to Ukrainian utility NAK Naftogaz Ukrainy. Gazprom Deputy Chief Executive Officer Alexander Medvedev said Ukraine shut off a fourth pipeline after closing three others yesterday.

The move, stopping all deliveries to Austria, the Czech Republic and Slovakia, came after a halt in supplies to the Balkans yesterday and cuts to other countries. The dispute echoed a similar conflict in 2006 which interrupted shipments to Europe.

“If Ukraine fully stops delivery of gas to the west, for consumers in central and western Europe, we do not see sense in supplying gas to the border with Ukraine,” Gazprom Chief Executive Officer Alexei Miller said at Prime Minister Vladimir Putin’s Novo-Ogarevo residence near Moscow late yesterday.

U.K. natural gas for February delivery rose 1.4 percent to 61 pence a therm as of 7:40 a.m. in London, according to prices from ICAP Plc. That’s equivalent to $9.10 a million British thermal units. A therm is 100,000 Btus. The contract traded as high as 62.75 pence a therm with ICAP yesterday.

OMV AG, Austria’s largest oil and gas company, said Russian natural gas deliveries halted completely to the country after yesterday’s reduction of about 90 percent.

Austrian Reserves

OMV will cover the cut in Russian deliveries by tapping the 1.7 billion cubic meters it has in reserves. Austria gets 51 percent of its gas from Russia, Vienna-based OMV said.

Slovensky Plynarensky Priemysel AS, Slovakia’s dominant gas company, said deliveries of Russian gas to the country were halted overnight.

The Bratislava-based company said it began restricting supplies to the largest industrial companies in the eastern European country. Households are not affected, the utility’s spokesman Lubomir Tuchser said.

Gas supplies from Ukraine to Poland were at 15 percent of normal volume, unchanged from yesterday, as of 8 a.m. in Warsaw, Malgorzata Polkowska, a spokeswoman for pipeline network operator Gaz-System SA, said today.

She said she didn’t know how long it would take before Poland was affected by the complete cutoff of Russian supplies to Ukraine.

“Gazprom risks increasing negative publicity,” said Igor Kurinnyy, an oil and gas analyst with ING Groep NA. “What matters is that European customers are facing disruption.”

Diversified Supplies

Since a similar dispute in January 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 last year, to reduce emissions linked to global warming.

Naftogaz Chief Executive Officer Oleh Dubina said he would return to Moscow tomorrow to resume talks. 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 related debt claims.

Gazprom’s Medvedev told Bloomberg Television yesterday that “unilateral action of the Ukrainians” was causing the shortfalls. Naftogaz spokesman Valentyn Zemlyanskyi said Gazprom, Russia’s state-run gas exporter, cut shipments to Europe through Ukraine yesterday to 74 million cubic meters a day, compared with about 300 million normally.

Miller said Gazprom would hold talks with European partners in Brussels tomorrow.

Arctic Air

As the dispute intensified, Arctic air from Siberia pushed into Central Europe, northern France, Italy and parts of the U.K., bringing snow and temperatures as low as minus 25 degrees Celsius (minus 13 degrees Fahrenheit) in parts of Germany.

Russia, which supplies a quarter of Europe’s gas, cut shipments intended for Ukraine’s domestic market on 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.

Gas flows to Bulgaria, Turkey, Greece and Macedonia were halted early yesterday morning at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said. Russian gas is sent through Ukraine and then Romania to the southern Balkan states. Supplies were cut to Romania and Croatia too.

Lower Supplies

“The former Soviet bloc countries are between the devil and the deep blue sea,” James Nixey, manager of the Russia and Eurasia Program at London-based foreign policy research institute Chatham House, said by phone. “They are reliant on Russian energy more than Western countries and that’s a big problem because they are desperately trying to break free, but then the reality is that they just can’t.”

Further west, Russian gas supplies to Germany’s Waidhaus transit point, near the Czech border, stopped completely at times yesterday, according to Kai Krischnak, a spokesman for the Ruhrgas unit of E.ON AG, Germany’s biggest utility.

Other utilities across Europe experienced lower gas supplies yesterday, including Austria’s OMV AG, which operates Baumgarten gas hub, near Vienna, and Poland’s Polskie Gornictwo Naftowe I Gazownictwo SA.

Czech Prime Minister Mirek Topolanek, whose country holds the revolving presidency of the EU, said the dispute between Russia and Ukraine on gas prices is becoming “more serious” and the effects are spreading across Europe.

Alternative Sources

Other countries can’t be “held hostage” by Russia over gas supplies, Topolanek told reporters in Prague yesterday. Ukraine may have to compromise on gas fees in the disagreement, he added.

Italy, Poland and other nations said they were using stockpiled gas, and alternative delivery routes from Russia where possible, to help satisfy demand. Restrictions on which customers receive gas may prove necessary in some countries, should the stoppage prove prolonged.

Turkey may also draw on more natural gas from a pipeline from Iran, Energy Minister Hilmi Guler said.

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.

Ukraine’s political leaders, President Viktor 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.

Gazprom’s Medvedev said yesterday in London that the company is working to diversify its export routes to Europe, including two planned pipeline projects that bypass Ukraine.

The Nord Stream link, in which Gazprom owns 51 percent, is planned to run from Russia via the Baltic Sea to Germany. South Stream, where Eni SpA is a partner, will run from the Black Sea to Bulgaria, where it will split into a southern route to Italy and a northern route to Austria.

To contact the reporters on this story: Lyubov Pronina in Moscow on lpronina@bloomberg.net; Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net