Russia Cuts Flow of Natural Gas to Ukraine - New York Times
Russia Cuts Flow of Natural Gas to Ukraine - New York Times
January 1, 2006
Russia Cuts Flow of Natural Gas to Ukraine
By ANDREW E. KRAMER
MOSCOW, Jan. 1 -- Russia cut the flow of natural gas to Ukraine today as talks over pricing and transit terms unraveled into a bald political conflict that carried consequences for Ukraine's recovering economy and possibly gas supplies to Western Europe.
Effects were starting to be felt in Europe tonight. The Hungarian natural gas wholesaler MOL said that deliveries from the affected pipeline were down more than 25 percent, according to Reuters. The news agency added that in Poland, supplies dwindled 14 percent.
Polish officials said reserves were adequate for now, and the Hungarian company asked big gas consumers to switch to oil where possible.
The dispute comes a year after the Orange Revolution brought a pro-Western government to power in Ukraine, and ends a decade of post-Soviet subsidies in the form of cheap energy that allowed Moscow to retain some influence over the former Soviet republics.
At the heart of the conflict is a jump in Moscow's utility bill for Ukraine: Russia is now asking for $220 to $230 per 1,000 cubic meters of natural gas, up from $50 now. Ukraine's economy has depended on buying cheap energy from Russia.
Apparently, an 11th-hour attempt to head off the shutdown failed.
Ukraine's natural gas distributing company, Naftogaz, said today that it had faxed a draft contract to Russia shortly after 11 p.m. Saturday agreeing to terms laid out earlier that evening by President Vladimir V. Putin of Russia, according to Russian news reports.
Mr. Putin had suggested a three-month grace period if Ukraine would agree to pay the higher prices thereafter. However, Gazprom, the Russian energy giant, said today that the fax had fallen short of demands.
Around 10 this morning, Gazprom began cutting the pressure on pipelines at the border with Ukraine; the effect on the Ukrainian web of gas pipelines was felt later in the day.
"The formula is simple," Gazprom's chief spokesman, Sergei V. Kupriyanov, said. "We supply Europe minus Ukraine."
The reduced pressure will not immediately lead to gas shortages in Ukraine or countries that receive gas exported from Russia through Ukraine, both Gazprom and independent experts say. Countries along the pipeline, including Ukraine, maintain reserves.
Still, choking the westbound pipes marks a dramatic gamble by Russia, one likely to send political and economic ripples westward in the months ahead.
Russia is positioning itself to become an energy-supplying nation capable of easing dependency on Middle Eastern oil in Western Europe and even in the United States.
On the same day it throttled back its gas to Ukraine, Russia assumed the chairmanship of the G-8, the club for the world's large developed economies, promising to push the theme of "energy security."
Mr. Putin has boldly promised not only a secure supply of fuel when he has made trips to Germany, Turkey and Japan last fall, but has also presented Russia as a potentially much larger energy exporting nation in the years ahead.
He pushed Germany to endorse a multibillion underwater gas pipeline in the Baltic Sea. Gazprom is hoping to extend the pipe to Denmark, Belgium and the United Kingdom. Gazprom is also in talks with a short list of five major energy companies to develop a massive gas field in the Barrents Sea, far above the Arctic Circle, hoping to ship significant quantities of liquefied natural gas directly to the world's largest energy consumer, the United States.
Amid the ambitious plans, Mr. Putin has said Russia's foreign policy will hinge on energy exports.
And Gazprom, 51 percent owned by the state, is the largest policy instrument -- though the company sometimes insists it operates only on business principles. Gazprom provides about 25 percent of Western Europe's natural gas.
Today's midwinter cut in gas supplies to Ukraine came as an unsettling reminder that promises of energy exports are not Russia's only method of using oil and gas to further its foreign policy goals -- it can also turn off the valve of energy exports.
The sudden loss of fuel, if it persists, could shake Ukraine's economy the way the 1973 oil embargo helped plunge the United States into recession. Ukrainian officials said Ukraine's economy could turn from modest growth now to a contraction of between 4 and 5 percent in 2006.
The dispute involves complex commercial arguments of Gazprom -- the company says it is charging Ukraine a price based on a basket of competing fuels on international exchanges, like diesel and bunker oil. But not far below that lies the embarrassing loss of a Kremlin-backed candidate in last winter's Orange Revolution.
The victory of Viktor A. Yushchenko as Ukraine's president last winter pulled the former Soviet country from Russia's sphere of influence. Tellingly, Mr. Putin, rather than company officials, made the final Russian offer of a grace period on New Year's Eve.
With its reduction in the flow of natural gas -- from a rate of around 120 million cubic meters per day to around 96, according to Gazprom -- Russia demonstrated that there is only so far Ukraine can go before Russia reacts, and that indeed the country is still within the range of Mr. Putin's influence.
Both sides blamed the other for the breakdown in talks.
"We will take all steps not to allow theft," the Russian Foreign Ministry said. "We get the impression that the Ukrainian government, feeling themselves uncertain, deliberately decided to break off the negotiation process."
Russia also sought to reassure customers in Western Europe of uninterrupted gas supplies.
"Russia counts on Ukraine to guarantee the stable supply of Russian gas to European countries in accordance with international obligations fixed in the European Energy Charter," the ministry statement said.
The complex maneuver to reduce pressure today showed that how the natural gas moves through a skein of pipes has dramatic geopolitical consequences.
Gazprom said it reduced the flow to equal the export volumes it agreed to provide countries farther to the west, minus what the company provides for the Ukrainian domestic market.
In addition to a larger pipeline -- called "Brotherhood" for the supposed warm relations between the two Slavic republics in Soviet times -- Russian gas enters Ukraine through more than 100 small pipes.
"There's a lot of posturing and a lot of ways to put pressure on Ukraine," said Leonid Y. Mirzoyan, an equity analyst at Dresdner Kleinwort Wasserstein, a financial company that has investment banking business with Gazprom.
Gazprom reduced the pressure in the gas mains leading to Ukraine at three metering stations and ceased boosting pressure in the westward bound pipelines from a storage system that is designed to keep the pressure up during peak demand in the winter.
"It's their task not to take the gas that goes through their territory," a Gazprom spokesman, Denis I. Ignatiev, said in an interview.
Ukraine also has domestic production and contracts for natural gas from the Central Asian country of Turkmenistan.
In Ukraine, Naftogaz officials have said exports to Western Europe would not diminish; yet government officials have also said the country will siphon gas from the export routes if necessary. Ukraine is a party to the European Energy Charter, an agreement intended to prevent disruption of fuel passing between countries.
Nonetheless, Mr. Ignatiev said this evening that Gazprom had already detected some siphoning of gas by Ukraine, but that the company would reveal its evidence on Monday.
January 1, 2006
Russia Cuts Flow of Natural Gas to Ukraine
By ANDREW E. KRAMER
MOSCOW, Jan. 1 -- Russia cut the flow of natural gas to Ukraine today as talks over pricing and transit terms unraveled into a bald political conflict that carried consequences for Ukraine's recovering economy and possibly gas supplies to Western Europe.
Effects were starting to be felt in Europe tonight. The Hungarian natural gas wholesaler MOL said that deliveries from the affected pipeline were down more than 25 percent, according to Reuters. The news agency added that in Poland, supplies dwindled 14 percent.
Polish officials said reserves were adequate for now, and the Hungarian company asked big gas consumers to switch to oil where possible.
The dispute comes a year after the Orange Revolution brought a pro-Western government to power in Ukraine, and ends a decade of post-Soviet subsidies in the form of cheap energy that allowed Moscow to retain some influence over the former Soviet republics.
At the heart of the conflict is a jump in Moscow's utility bill for Ukraine: Russia is now asking for $220 to $230 per 1,000 cubic meters of natural gas, up from $50 now. Ukraine's economy has depended on buying cheap energy from Russia.
Apparently, an 11th-hour attempt to head off the shutdown failed.
Ukraine's natural gas distributing company, Naftogaz, said today that it had faxed a draft contract to Russia shortly after 11 p.m. Saturday agreeing to terms laid out earlier that evening by President Vladimir V. Putin of Russia, according to Russian news reports.
Mr. Putin had suggested a three-month grace period if Ukraine would agree to pay the higher prices thereafter. However, Gazprom, the Russian energy giant, said today that the fax had fallen short of demands.
Around 10 this morning, Gazprom began cutting the pressure on pipelines at the border with Ukraine; the effect on the Ukrainian web of gas pipelines was felt later in the day.
"The formula is simple," Gazprom's chief spokesman, Sergei V. Kupriyanov, said. "We supply Europe minus Ukraine."
The reduced pressure will not immediately lead to gas shortages in Ukraine or countries that receive gas exported from Russia through Ukraine, both Gazprom and independent experts say. Countries along the pipeline, including Ukraine, maintain reserves.
Still, choking the westbound pipes marks a dramatic gamble by Russia, one likely to send political and economic ripples westward in the months ahead.
Russia is positioning itself to become an energy-supplying nation capable of easing dependency on Middle Eastern oil in Western Europe and even in the United States.
On the same day it throttled back its gas to Ukraine, Russia assumed the chairmanship of the G-8, the club for the world's large developed economies, promising to push the theme of "energy security."
Mr. Putin has boldly promised not only a secure supply of fuel when he has made trips to Germany, Turkey and Japan last fall, but has also presented Russia as a potentially much larger energy exporting nation in the years ahead.
He pushed Germany to endorse a multibillion underwater gas pipeline in the Baltic Sea. Gazprom is hoping to extend the pipe to Denmark, Belgium and the United Kingdom. Gazprom is also in talks with a short list of five major energy companies to develop a massive gas field in the Barrents Sea, far above the Arctic Circle, hoping to ship significant quantities of liquefied natural gas directly to the world's largest energy consumer, the United States.
Amid the ambitious plans, Mr. Putin has said Russia's foreign policy will hinge on energy exports.
And Gazprom, 51 percent owned by the state, is the largest policy instrument -- though the company sometimes insists it operates only on business principles. Gazprom provides about 25 percent of Western Europe's natural gas.
Today's midwinter cut in gas supplies to Ukraine came as an unsettling reminder that promises of energy exports are not Russia's only method of using oil and gas to further its foreign policy goals -- it can also turn off the valve of energy exports.
The sudden loss of fuel, if it persists, could shake Ukraine's economy the way the 1973 oil embargo helped plunge the United States into recession. Ukrainian officials said Ukraine's economy could turn from modest growth now to a contraction of between 4 and 5 percent in 2006.
The dispute involves complex commercial arguments of Gazprom -- the company says it is charging Ukraine a price based on a basket of competing fuels on international exchanges, like diesel and bunker oil. But not far below that lies the embarrassing loss of a Kremlin-backed candidate in last winter's Orange Revolution.
The victory of Viktor A. Yushchenko as Ukraine's president last winter pulled the former Soviet country from Russia's sphere of influence. Tellingly, Mr. Putin, rather than company officials, made the final Russian offer of a grace period on New Year's Eve.
With its reduction in the flow of natural gas -- from a rate of around 120 million cubic meters per day to around 96, according to Gazprom -- Russia demonstrated that there is only so far Ukraine can go before Russia reacts, and that indeed the country is still within the range of Mr. Putin's influence.
Both sides blamed the other for the breakdown in talks.
"We will take all steps not to allow theft," the Russian Foreign Ministry said. "We get the impression that the Ukrainian government, feeling themselves uncertain, deliberately decided to break off the negotiation process."
Russia also sought to reassure customers in Western Europe of uninterrupted gas supplies.
"Russia counts on Ukraine to guarantee the stable supply of Russian gas to European countries in accordance with international obligations fixed in the European Energy Charter," the ministry statement said.
The complex maneuver to reduce pressure today showed that how the natural gas moves through a skein of pipes has dramatic geopolitical consequences.
Gazprom said it reduced the flow to equal the export volumes it agreed to provide countries farther to the west, minus what the company provides for the Ukrainian domestic market.
In addition to a larger pipeline -- called "Brotherhood" for the supposed warm relations between the two Slavic republics in Soviet times -- Russian gas enters Ukraine through more than 100 small pipes.
"There's a lot of posturing and a lot of ways to put pressure on Ukraine," said Leonid Y. Mirzoyan, an equity analyst at Dresdner Kleinwort Wasserstein, a financial company that has investment banking business with Gazprom.
Gazprom reduced the pressure in the gas mains leading to Ukraine at three metering stations and ceased boosting pressure in the westward bound pipelines from a storage system that is designed to keep the pressure up during peak demand in the winter.
"It's their task not to take the gas that goes through their territory," a Gazprom spokesman, Denis I. Ignatiev, said in an interview.
Ukraine also has domestic production and contracts for natural gas from the Central Asian country of Turkmenistan.
In Ukraine, Naftogaz officials have said exports to Western Europe would not diminish; yet government officials have also said the country will siphon gas from the export routes if necessary. Ukraine is a party to the European Energy Charter, an agreement intended to prevent disruption of fuel passing between countries.
Nonetheless, Mr. Ignatiev said this evening that Gazprom had already detected some siphoning of gas by Ukraine, but that the company would reveal its evidence on Monday.
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