Blackout fear for EU as gas row escalates

(EPA)

Russia cut off gas supplies to Ukraine yesterday in a dispute over unpaid bills that rang political alarm bells across the European Union, which imports up to 40 per cent of its natural gas from Russia, the bulk of it through Ukraine.

Jose Manuel Barroso, the European Commission president, called on Moscow and Kiev to solve the dispute as soon as possible. While Gazprom, the Russian energy giant, says it will continue pumping gas to European customers through Ukrainian territory, there are fears that Germany, Italy and other customers could eventually be hit if the dispute escalates. Two years ago, when Moscow cut supplies to Ukraine in a similar dispute, several EU countries experienced gas shortages after Ukraine tapped into the pipelines.

Washington responded to yesterday's shutdown by warning Russia that a "predictable" energy flow to Ukraine was essential. Urging Moscow to restore supplies, a White House spokesman said Russia should bear in mind "the humanitarian implications" of its action. "The parties should be resolving their differences through good-faith negotiations, without supply cutoffs," Gordon Johndroe said.

Talks between Gazprom and the Kiev gas company Naftogaz on the price of gas to be paid by Ukraine in 2009 and on fines Russia says it wants for £1bn in late payments broke down on Wednesday night and Russia turned off the taps early yesterday.

"We don't have any contract to supply gas for Ukraine's consumers at the moment, and thus we don't have any reasons to continue supplying gas," Sergei Kupriyanov, a spokesman for Gazprom, said.

While the latest dispute appears to threaten a replay of the 2006 crisis, which led to accusations that Moscow was using "energy blackmail" to punish its West-leaning neighbours, this time analysts say Russia's tough stance over the price of gas is more a reflection of its deteriorating economic situation as the global recession takes hold.

Ukraine says it can manage without Russian gas for several weeks through a combination of reserves and domestic gas production of 60 million cubic metres a day. Russia has been pumping 110 million cubic metres to Ukraine, plus 300 million cubic metres to European users through Ukraine's pipelines.

The price demanded by Russia of Ukraine was $250 per 1,000 cubic metres. Ukraine had argued that in the face of the declining oil prices, a fairer price would be $100 per 1,000 cubic metres. Western European consumers get Russia's gas for over $400 per 1,000 cubic metres.

Ukraine's 2008 debt for gas, which Moscow says is $2.1bn, remains another stumbling block in the talks.