Russia further reduces gas flow to Europe
In reaction to escalating tension with Kiev, Prime Minister Putin ordered gas supplies across Ukraine to be cut by one sixth.
MOSCOW/KIEV (Reuters) -- Russia will reduce gas flows to Europe via Ukraine by the same amount it says Kiev is siphoning off, a measure that could further hurt supply to European countries facing freezing temperatures.
On Monday Prime Minister Vladimir Putin ordered state-run monopoly Gazprom to reduce supplies to the Ukrainian border in an escalation of the dispute between the two countries. Europe relies on pipelines across Ukraine for one fifth of its gas.
"Yes, cut it today," Putin told Gazprom Chief Executive Alexei Miller at the prime minister's residence near Moscow.
Russia, in a dispute with Kiev over debts and pricing, cut gas supplies to Ukraine on New Year's day. The row has already slashed gas flows to Greece by a third and disrupted supplies to other consumers in eastern Europe.
The European Union had earlier scheduled talks with Gazprom for Tuesday to press for a speedy resolution. The meeting will take place in a European capital yet to be confirmed.
"Since we are the main market for Russian gas ... we have an obvious interest in applying pressure on these parties to reach as soon as possible an agreement which is definitive," said EU Commission spokesman Johannes Laitenberger.
He said he believed there was no immediate danger to EU consumers from the dispute.
Disruptions to gas supplies have so far hit Turkey, Poland, Romania, Bulgaria and Hungary. The Czech Republic, which holds the rotating EU presidency, reported a 9.5% drop in gas flows.
European energy firms have enough gas stockpiled to maintain supplies for several days but analysts have said they could face problems if the row drags on for much longer.
"The situation is worrying when someone is unable to fulfil their contract," Dimitar Gogov, chief executive of Bulgarian state gas monopoly Bulgargaz, told Reuters from the capital Sofia, where temperatures were minus 5 degrees Celsius.
The row mirrors a dispute three years ago that disrupted gas supplies to Europe via Ukraine. Its repeat raises questions about Russia's reliability as an energy supplier, straining ties with the West already fraught after war in Georgia last August.
The Kremlin has long opposed Ukraine's ambition to join NATO and some Western policymakers see parallels between the Georgian conflict and Russia's treatment of Ukraine.
Worries about the impact of the row on fuel supplies, coupled with the conflict in the Middle East, helped drive oil prices to a three-week high. Any gas shortages could drive up demand for oil products.
Gazprom CEO Miller told Putin he had proposed cutting gas delivered to Europe via Ukraine by 65.3 million cubic metres, the amount it accuses Kiev of siphoning off.
The amount represents roughly one sixth of the volume Russia ships via Ukraine for European customers.
To compensate for the shortfall, he said Gazprom would pump additional volumes via alternative routes, including Belarus, the Blue Stream pipeline under the Black Sea and from underground reserves in Europe.
But Ukrainian state-run energy firm Naftogaz on Monday accused Gazprom's Moldovan unit of siphoning off transit gas destined for southern Europe.
As Russian supply fears grip Europe, Norwegian oil and gas producer StatoilHydro -- Europe's No. 2 supplier after Gazprom -- pledged to sell surplus natural gas to EU markets.
Gazprom is demanding Ukraine pay $450 per 1,000 cubic metres of gas after Kiev rejected a previous proposal of $418. The price is more than double what Kiev says it is willing to pay.
EU customers pay about $500 per 1,000 cubic metres of Russian gas, but the price - which traditionally follows oil with a six-month lag - is set to drop in line with crude, which has lost two-thirds of its value since peaking in July 2008.
Ukraine's economy, among the worst hit by the global financial crisis, is forecast to contract by between three percent and five percent this year, leaving it little room to accept the higher gas prices Russia is demanding.
Naftogaz said it was ready to resume talks to find a way out of the dispute but Gazprom's deputy chief executive, Alexander Medvedev, said Kiev had snubbed an invitation to negotiate.
"We are not only not close to a settlement, but we don't even see any negotiating partners at the table," Medvedev told a news briefing in Paris.
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