Russian Gas Pains Cause Europe To Double Over

From The Guardian: Russia turns off supplies to Ukraine in payment row, and EU feels the chill

Monday January 2, 2006

Russia followed through on its threat to stop natural gas supplies to Ukraine yesterday, in a fierce political standoff that is threatening to affect domestic fuel bills across Europe. Delivery from Siberian gas fields to Ukraine was cut off by reducing pressure in the pipeline network that also carries billions of cubic metres of gas chiefly to Germany, Italy and France.

The fallout was immediately felt in Germany and Hungary last night as gas suppliers warned of possible cutbacks.
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Russian gas deliveries to Hungary via Ukraine fell by another 5-10% yesterday an big gas consumers were ordered to switch to oil where possible, Hungary's natural gas wholesaler Mol said. "Gas shipments are now down by more than 25%, a company spokesman, Sandor Kantor, told Reuters news agency.

The head of Germany's gas distributor warned that Russia's move to cut off natural gas to Ukraine could eventually crimp supplies for German industrial customers. Big business customers "are not affected at the moment, but down the line limited reductions in supply are not excluded," Ruhrgas's chief executive, Burckhard Bergmann, warned.
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Gazprom provides about half the gas consumed in the EU and some 80% of that passes through pipelines that cross Ukraine.
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The roots of the "gas war" lie in the widening divide between Moscow and Kiev since Ukraine signalled a dash towards EU and Nato integration after its "orange revolution" in 2004. Russia has important military bases in Ukraine and was previously pushing for its own economic union with the country.
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Ukraine says it has enough alternative supplies to provide to homes for several months, as temperatures hover around 2C, but the steelmaking plants that comprise a huge chunk of its economy could grind to a halt if Russia keeps the tap turned off for long.

A key issue for Ukraine will be the delivery of gas from Turkmenistan, which has been the country's single-largest supplier. Yesterday the Turkmen president, Saparmurat Niyazov, said 40bn cubic meters would be delivered to Ukraine this year - about the same amount as last year - which comes via pipelines crossing Russia. However, Gazprom this year is significantly increasing its own purchases of Turkmen gas, which some analysts suggested could bring a reduction in supplies to Ukraine.

Until Saturday, Gazprom supplied a third of Ukraine's supply. It bought up excess gas from Turkemistan for Russian consumption last week, in a move interpreted by some analysts as an effort to prevent its delivery to Ukraine.
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Alexander Lebedev, a Russian state duma deputy, said he feared Russia's tough stance would remind the world of Soviet posturing. "We used to be called Upper Volta with rockets," he said. "Now it's Upper Volta with gas.

For more background information, see Russians Can't Pass Gas?.