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Msg  1473 of 14182  at  1/2/2009 1:54:03 PM  by


Gas price confusion....who knws who gets what then??? Russians charge whatever they want it appears....



Gazprom Boosts Belarus Gas as Ukraine Dispute Deepens (Update1)
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By Stephen Bierman and Henry Meyer

Jan. 2 (Bloomberg) -- OAO Gazprom boosted gas supplies to Europe through Belarus as Russias dispute with Ukraine over pricing deepened and no new talks were scheduled.

The Ukrainian negotiating team remained in Kiev and hasnt said when it plans to return to Moscow, Gazprom spokesman Sergei Kupriyanov told reporters today. Talks between the two sides on the price of gas deliveries to Ukraine for 2009 and transit fees for Russian gas to Europe through the country broke down on Dec. 31, and Gazprom cut supplies of the fuel to Ukraine yesterday.

Russia, which supplies a quarter of Europes gas, 80 percent through Ukraine, is seeking to avoid further damage to its reputation after its August war with U.S.-allied Georgia. This weeks cutoff echoed a similar dispute in 2006 which disrupted supplies to Europe, calling into question Russias reliability as an energy supplier.

Its a game of nerves like it was three years ago, Masha Lipman, an analyst with the Moscow Carnegie Center research group, said in a phone interview today.

Officials from Gazprom, Russias state gas exporter, are ready to travel to Brussels and European Union countries to explain Russias stance, the Russian Foreign Ministry said today. A Ukrainian delegation led by Energy Minister Yuriy Prodan was already on a tour of EU capitals, visiting Prague to hold talks on the gas price and debt conflict.

Offer Withdrawn

Gazprom yesterday withdrew an offer to sell Ukraine gas at $250 per 1,000 cubic meters as the Ukrainian side pushed for a cheaper rate, saying the country must now pay a European market price of $418. Kupriyanov said Gazprom has increased shipments of gas through an alternative route via Belarus, and has capacity to send further supplies using that network.

The Belarus option is certainly viable and they could put some of the gas through Belarus, Jonathan Stern, director of gas research at Oxford Energy, said today. But it certainly is not the solution. There is some spare capacity within the Belarus corridor but it is probably within the order of 10 percent from Ukraine capacity.

Ukraine, which relies on Russian gas for 70 percent of its needs, is in the midst of a financial crisis that has forced it to secure a two-year, $16.4 billion International Monetary Fund bailout. It is asking Russia to pay higher transit fees if it wants to raise gas prices.

European Market

The European Union urged Russia and Ukraine to rapidly resolve their dispute and said it counted on assurances gas supplies would continue uninterrupted. The U.S. said the two sides should resolve their differences through good-faith negotiations, without supply cutoffs.

The main consumers of Russian gas transported through Ukraine said they are so far unaffected or are prepared for any drop. Hungary, Poland, Slovakia and the Czech Republic today said their supplies have so far been normal. Italy said it can meet any short-term demand from storage and could, if necessary, increase supplies from Algeria.

Gazprom yesterday increased its deliveries to Europe through Ukrainian territory by 20 million cubic meters a day. It accused Ukraine today of siphoning off that amount and blocking access to the transit facilities by independent experts. Ukrainian state energy company NAK Naftogaz Ukrainy said it is using the Russian gas to keep the pipeline network operational.

Winter weather may affect consumption levels in Ukraine. Temperatures may fall as low as minus 10 degrees Celsius (14 degrees Fahrenheit) in Kiev today, according to

Ukraine Debt

Kupriyanov said today that Ukraine would still owe Russia $614 million after paying $1.5 billion out of debts of $2.1 billion for gas received in November and December plus fines.

Naftogaz doesnt recognize any debt on Russian gas and has paid for everything, Valentyn Zemlyanskyi, a spokesman for the Ukrainian utility, said by phone in Kiev. Zemlyanskyi said any penalties must be discussed in court.

The threat to European energy supplies is less severe than during the 2006 dispute, because liquefied natural gas shipments have diversified supplies and utilities say they have sufficient inventories. Ukraine says it has gas in storage equivalent to about 35 percent of annual consumption.

In 2006, some consumers, including in Hungary and Italy, registered shortfalls in shipments in the shutoff, which lasted for more than two days.

Holding Pattern

Talks are in a holding pattern, as there are no looming deadlines, Alfa Bank Chief Strategist Ron Smith said by telephone from London today. Ukraine has gas in storage, reportedly, and gas is flowing into Europe.

Naftogaz Chief Executive Officer Oleh Dubina said Ukraine offered on Dec. 31 to pay Russia $235 per 1,000 cubic meters, compared with the 2008 rate of $179.50.

Russia said its $250 offer already marked a concession to Ukraine, pointing out that Gazprom will pay an average of $340 per 1,000 cubic meters of gas from three Central Asian nations in the first quarter.

Naftogaz on Dec. 31 also asked for a transit rate for Russian gas of $1.80 per 1,000 cubic meters per 100 kilometers (62 miles). That compares with the agreed 2008 rate of $1.70. Russia is refusing to renegotiate the transit tariff, saying its agreement runs until the end of 2010.

Georgia Conflict

In 2006, the gas conflict was widely seen as a Russian response to the 2004 Orange Revolution that brought Western- backed opposition leaders to power in Ukraine. Ties between the two countries have soured over Ukraines drive to join the North Atlantic Treaty Organization and Russia has accused the Ukrainian leadership of supplying weapons to Georgia in the August conflict.

Belarus, an ally of Russia that is considering stationing Russian weapons to counter a planned U.S. missile shield, secured an undisclosed lower gas price for 2009, after paying $129 per 1,000 cubic meters last year.

The emotional factor in Russias relations with Ukraine is interfering with its far-reaching goal of developing good trade relations with Europe, said Lipman.

U.K. February gas fell 3.95 pence, or 6.7 percent, to 54.75 pence a therm, according to data from broker Spectron Group Ltd. Thats equal to $7.95 a million British thermal units. A therm is 100,000 Btus. It rose as high as 60 pence earlier today, the first trading session after Russia cut supplies to Ukraine yesterday. Dutch gas for February fell 6.1 percent to 20.10 euros ($28) a megawatt hour.

-- With reporting by Daryna Krasnolutska, Kateryna Choursina in Kiev, Balazs Penz in Budapest, Mathew Carr in London, Katarzyna Klimasinska in Warsaw, Radoslav Tomek in Bratislava, Adam Freeman in Rome and Lenka Ponikelska in Prague. Editors: Guy Collins, Rob Verdonck.

To contact the reporters on this story: Stephen Bierman in Moscow at Sbierman1@bloomberg.netHenry Meyer in Moscow at

Last Updated: January 2, 2009 12:54 EST



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