Study of Signals

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Europe, US uneasy after Russia cuts Ukraine gas supply
By Meg Clothier Sun Jan 1, 7:45 PM ET

MOSCOW (Reuters) - The United States said Russia's halting of gas supplies to Ukraine raised questions about use of energy as a political weapon, and European countries voiced concern their supplies could be hit at the height of winter.

Russia, taking over the G8 chairmanship for the first time this month aiming to promote itself as a reliable energy source, cut its neighbor's gas supplies on Sunday.

Moscow said it had no choice but to act after Kiev refused to sign a new contract that would have jacked up prices fourfold, ending the preferential treatment of Soviet days.

The Kremlin describes the dispute as a purely commercial matter. But Kiev sees an attempt to undermine its pro-Western government and says cutting Ukrainian supplies will undermine deliveries passing through the same pipeline complex to Europe.

The move appeared to be affecting deliveries to central Europe by early evening, with both Hungary and Poland reporting reduced deliveries.

Washington stepped into the row, with the State Department saying it regretted Russia's move.

"Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure," State Department spokesman Sean McCormack said in a statement.

"The U.S. has encouraged a compromise solution, and we remain hopeful that a resolution will be reached between the two sides that provides energy security and predictability for all concerned."

Western Europe, where demand is near peak levels because of freezing weather, imports 25 percent of its gas from Russia, with most of that delivered by pipelines running across Ukraine.

The Russian state monopoly, Gazprom, said enough gas was still being piped via Ukraine to meet its commitments to other countries. If they were not getting all their gas, it said that meant Ukraine was tapping into it.

GAS PLEASE

Hungary's gas wholesaler MOL said its Russian deliveries via Ukraine had fallen by more than 25 percent, forcing it to order big consumers to switch to oil where possible. Poland also said supplies were down by 14 percent.

Germany's largest gas supplier, E.ON-Ruhrgas, warned there could be problems for big wholesale customers if the dispute dragged on.

"If the reduction in supplies should prove to be especially large or last for a long time or the winter turns out to be especially cold, then we will hit the limits of our capacities," chief executive Burckhard Bergmann said on Sunday.

German, Italian, French and Austrian energy ministers have made a joint appeal to Moscow and Kiev to keep gas flows steady and an emergency European Union meeting is due on Wednesday.

Western-leaning Ukrainian President Viktor Yushchenko is trying to take his state into the EU and NATO. This annoys Moscow, which does not like the idea that its influence over the former Soviet Union might be waning.

Ukrainian officials say that is why the Kremlin is punishing Ukraine with a huge price increase while giving Moscow-friendly ex-Soviet states such as Belarus a much easier ride.

Yushchenko, struggling to live up his people's high hopes after the "Orange Revolution" a year ago, says Ukraine is prepared to pay more for its gas -- but will not agree to a big jump all at once. Moscow wants to raise the price to $230 per 1,000 cubic meters from the current $50.

Ukraine had threatened to retaliate by raising the rent that Russia's navy pays to use the Ukrainian port of Sevastopol as headquarters for its Black Sea fleet.

It also says it is entitled to skim off 15 percent of gas to cover transit fees, but Gazprom is accusing Ukraine of siphoning off gas destined for Europe illegally.

Ukraine still has gas thanks to reserves and the country's own modest output and officials say there is enough in store to see households through the winter.

But they are making no comment on the security of supplies to industry and shortages could begin to bite within days.

http://news.yahoo.com/s/nm/20060102/ts_nm/russia_ukraine_dc