Russia halts gas sales to Ukraine

Russia’s natural gas monopoly Gazprom halted sales to Ukraine today in a price dispute.

It also began reducing pressure in transmission lines to the country that also carry substantial gas supplies to western Europe.

Ukraine’s natural gas company Naftogaz acknowledged the reduction.

Some Ukrainian regions along the Russian border had begun experiencing pressure drops, a duty officer at the country’s Emergency Situations Ministry said. There were no immediate reports of services being cut off.

OAO Gazprom had demanded that Ukraine more than quadruple the amount it pays for Russian gas, which accounts for about a third of the consumption in the country of 48 million.

Gazprom had said its official sales cut-off to Ukraine would be 10am local time (7am Irish time). But even before that deadline, company spokesman Sergei Kuprianov said pressure in the pipelines was being reduced.

“Export gas for Europe is moving at full volume,” Kuprianov said in comments shown on Russian television.

Gazprom provides about half the gas consumed in the European Union and some 80% of that amount is sent in pipelines that cross Ukraine. The price dispute has raised widespread concerns that European supplies could be affected.

Supply problems to Europe could undermine Western trust in Russia’s natural gas industry, one of the cornerstones of the country’s economy, and tarnish Russia’s stint as chairman of the Group of Eight, which formally started today.

A Foreign Ministry statement today said Russia would “strictly fulfil” its supply commitments to Europe and that “responsibility for any possible … problems for European countries caused by the actions of Kiev will lie with Ukraine.”

Ukrainian officials have previously said that the country’s transit arrangements would allow it to siphon off up to 15% of the gas moving through the country. Russia says that would be outright theft.

Ukrainian officials have also said the country has sufficient gas reserves to weather a Gazprom cut-off for at least several weeks, but have declined to specify how much is in reserve.

Despite Ukraine’s claims, Kuprianov predicted the country would suffer quick and severe effects.

Ukraine’s refusal “to meet our proposals for resolving the problems will have catastrophic consequences for the economy of Ukraine and, unfortunately, for the brotherly Ukrainian people,” he said.

Russian president Vladimir Putin said today that Ukraine could continue paying the old, lower price of $50 (€42) per 1,000 cubic metres for the first quarter of 2006, but only if Ukraine agreed by the end of the day to start paying the new price of $230 (€194) in the second quarter of the year.

Kuprianov said Ukraine formally refused the offer.

Gazprom has said the price increase was necessary to conform to world gas price levels. Ukraine has not objected to adjusting the market conditions, but wants an increase to be phased in gradually. President Viktor Yushchenko said late on Friday that the most it is willing to pay now is $80 (€68).