Ukraine says Russia halts all gas to Europe

PARIS: All gas supplies to Europe via Ukraine were shut down Wednesday as the pricing dispute between Russia and Ukraine escalated.

The Ukrainian gas company Naftogaz on Wednesday accused Gazprom, the Russian gas monopoly, of halting all transshipments at 7:44 a.m.

But in Berlin, Aleksandr Medvedev, Gazprom's deputy chief executive, told journalists that it was Naftogaz, the Ukrainian company, that had closed a fourth pipeline.

"Unfortunately, the situation is continuing to deteriorate," Reuters quoted Medvedev as saying. "Yesterday night, Ukraine completely shut down all export pipelines to Europe via Ukraine."

The shutdown left Slovakia, the Czech Republic, Austria and Romania with no Russian gas supplies amid a bitter cold snap. European Union countries have access to some other sources of gas — including Russian gas from other pipelines, and gas produced in Britain, Norway and the Netherlands — but the loss of the Ukrainian pipeline puts the EU under pressure to push for a solution.

The cutoff of European gas supplies began Tuesday, causing shortages from France to Turkey. Gazprom said Ukraine was siphoning off for itself supplies meant for Europe, and that it was reducing shipments by an equivalent amount. Russia had already halted all supplies to Ukraine for its own use, saying its western neighbor was not paying enough for the fuel.

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters from $179.50 last year. It also wants to collect what it says are fines for late payments on previous shipments.

In Vienna, the Austrian gas company OMV said Wednesday it was no longer receiving any Russian gas, after its deliveries fell 90 percent Tuesday.

Viktor Yuschenko, the Ukrainian president, called for immediate talks in Moscow to restart the flow.

The European Commission said Tuesday that the situation was "completely unacceptable" and called for the immediate restoration of the gas supply. Europe depends on Russia for 40 percent of its imported fuel.

Gazprom officials in Moscow did not immediately respond to requests for comment. Wednesday is the Orthodox Christmas holiday.

While each side blamed the other for the scope of the latest drop in gas shipments, Russia's prime minister, Vladimir Putin, had personally announced Monday evening on state television that he was ordering a sharp reduction in gas flows, saying Ukraine was siphoning gas from the pipelines without paying.

For Putin, the escalation comes at a perilous time, as slumping energy prices threaten the fiscal health and political stability that have underpinned his popularity at home.

Some analysts of Russian politics had expected Putin to become more conciliatory as energy prices fell. Instead, he has taken a hard line in seeking to raise gas prices in Ukraine and perhaps create panic-buying on the international market, where prices of natural gas and oil, Russia's leading exports, have fallen sharply in recent months.

"They're still playing hardball, when they have to realize the rules have changed," Marshall Goldman, a senior scholar in Russian studies at Harvard and the author of the recent book "Petrostate: Putin, Power and the New Russia," said in a telephone interview. "It happened so quickly that I don't think they've had time to realize the implications."

With temperatures plunging, European leaders expressed mounting concern. Some countries announced rationing for industrial customers to reserve enough heating for residential buildings.

A spokesman for the European Commission said that the cut had come "without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities," adding, "This situation is completely unacceptable."

The cutoff appears to have multiple aims.

Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against last summer.

Putin is also under heavy pressure domestically. Oil and gas exports provide about 60 percent of the Russian budget; oil prices, meanwhile, have fallen by about two-thirds since their peak last summer.

The effects are rippling through the economy. The ruble is being devalued, Russian companies are facing bankruptcy and the government's huge budget surplus will turn into a deficit next year if prices do not rebound, analysts say.

At the same time, Russia's relations with the West slumped to post-cold-war lows after Russia sent troops into Georgia in August.

Even as Russia will need foreign investment to offset dwindling energy export revenues, options are dwindling for attracting investors to a country that even in the best of times had a poor track record of property rights.

"The Russian elite mind-set right now is a residue of petro-confidence slamming into the financial crisis," said Cliff Kupchan, a director at the Eurasia Group, a global risk-consulting firm based in New York. "So in my view, they're confused about whether to seek help from the international financial system to solve their problems that way or continue a bare-knuckled approach to the world."

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters, from $179.50 last year.

It also wants to collect what it says are fines for late payments on previous shipments.

Ukraine has in turn demanded that Gazprom pay more to transship gas to Europe.

Executives of Gazprom blamed Ukraine. In an announcement on Monday, Putin and Gazprom's chief executive, Aleksei Miller, said they would cut 65.3 million cubic meters of gas supplies for Europe. In fact, the reduction totaled about 240 million cubic meters, according to Gazprom.

Company officials said that they had intended to ship more fuel on Tuesday, but that Ukraine had blocked export pipelines. Ukrainian energy officials denied this.

"We are shocked that we're not in the position to bring gas to the border of Ukraine because they shut down the pipelines," Medvedev, a deputy chief executive of Gazprom, said at a news conference in London on Tuesday. "There is no reason to blame Russia or Gazprom."

Oleh Dubyna, the director of Ukraine's national energy company, Naftogaz, said he would fly to Moscow on Thursday to resume negotiations.

Gazprom's spokesman, Sergei Kupriyanov, said the company was "ready to begin negotiations at any moment."

A compromise may be harder to find this year, Thane Gustafson, an expert on Russian energy at Cambridge Energy Research Associates of Massachusetts, said in a telephone interview from Washington. "We're talking about two sides that are under extreme constraint," he said.

Among the pipeline routes that were affected the most was the so-called Western Balkan route, affecting supplies to Romania, Bulgaria, Macedonia, Greece and Turkey, said Ferran Tarradellas, a spokesman for the European Union energy commissioner, Andris Piebalgs.

Substantial cuts could also affect Slovakia, Hungary, Slovenia, Italy and Austria, Tarradellas said.

In Turkey, flows of gas through a pipeline that runs from Ukraine stopped completely on Tuesday morning, said the country's energy minister, Hilmi Guler. The pipeline is a major source of gas for Turkey, which imports nearly all its energy.

Several other sources, including the Blue Stream pipeline, which carries gas to Turkey from Russia under the Black Sea, were unaffected, however.