EU gas supplies hit hard by Kiev dispute

By Financial Times reporters

Published: January 6 2009 18:53 | Last updated: January 7 2009 01:02

Gas supplies to much of western Europe fell sharply on Tuesday as a dispute over energy prices between Russia and Ukraine intensified, with Gazprom, the Russian gas giant, accusing Kiev of “barbarian behaviour”.

Amid cold weather across the continent, the European Union called the reduced gas supplies “completely unacceptable” and demanded an immediate resumption of pipeline flows.

However, Moscow and Kiev blamed each other for the disruption. In London, Alexander Medvedev, deputy chief executive of Gazprom, told reporters: “The Ukrainians have lost the plot.”

The two countries are in dispute over the price that Ukraine will pay for Russian gas this year and over a debt of $615m (€450m, £420m) that Gazprom says it is owed for unpaid bills and penalty charges. Russia cut off gas supplies to Ukraine on January 1.

The countries hardest hit on Tuesday were Romania, Bulgaria, Greece, Macedonia and Turkey, with all reporting a halt to Russian gas deliveries through Ukrainian pipelines in the early hours.

However, supply disruptions later spread into western Europe, with Germany, France and Italy reporting sharp reductions.

Eon, the Germany energy group, said Russian gas deliveries via Ukraine to Germany – Gazprom’s biggest foreign customer – were flowing at a “significantly reduced” rate.

Bulgaria said it had sufficient gas stocks to last only two days and cut supplies to its big Neftochim petrochemicals plant.

Slovakia, dependent on Russia for almost all of its gas, declared a state of emergency after deliveries shrank by 70 per cent and warned industrial users to prepare for supply cuts in the near future.

Naftogaz, Ukraine’s state gas company, said it would reopen talks with Gazprom in Moscow on Thursday.

Following talks on Tuesday night in Berlin with Gazprom, Michael Glos, German economy minister, said Russia’s reputation as a gas supplier and Ukraine’s reputation as a transit route were at stake.

Gazprom said it supplied about 65m cubic metres of gas to Europe through Ukraine on Tuesday, 78 per cent less than the 300m it had been shipping since January 1.

Ukraine ordered industrial plants and utilities to switch to alternative fuels in case the crisis dragged on.

The EU, dependent on Russia for 25 per cent of its gas, blamed both sides for the crisis.

The Czech Republic, holder of the rotating presidency, and José Manuel Barroso, president of the European Commission, said in a statement: “Without prior warning and in clear contradiction with the reassurance given by the highest Russian and Ukrainian authorities to the European Union, gas supplies to some member states have been substantially cut.”

Fears of shortages sent wholesale gas prices higher in Britain, with the price of gas for delivery on Wednesday rising 12 per cent to 68p per therm.