Blocked shipments add to Russia-Ukraine gas conflict

Ukraine has blocked transit shipment of Russian natural gas to Europe, escalating an acrimonious energy dispute dispute between the two countries and increasing the threat of a natural gas shortage in Europe, Ukrainian media reported Monday, dpa reported.

Executives from Ukrainian natural gas monopolist Naftogaz Ukrainy refused late Sunday evening to receive 15 million cubic metres of Russian natural gas per day in the Ukrainian gas pipeline network, citing absence of a contract to do so, Korrespondent magazine reported.

The volume barred was small relative to the overall volume of Russian gas still transiting Ukraine en route to European consumers, currently some 310 million cubic metres per day, according to a Channel 5 television news report.

The 15 million cubic metres, had it gone through, would have been an increase over the standard winter volumes of gas shipped by the Russian natural gas monopolist Gazprom to Europe, aimed primarily at giving European energy companies more gas needed for heating as severe cold weather moves through Europe.

The Ukrainian refusal to sanction an increase in Russian gas shipped to Europe - under normal circumstances a routine matter handled by Russian and Ukrainian energy technicians - marked the first active refusal by Ukraine to sanction a Russian increase in natural gas exports to Europe since the onset of the latest natural gas crisis between the two countries.

The current Russo-Ukrainian energy conflict came to a head on the first day of 2009, when a gas shipment contract between the two countries became ineffective.

Naftogaz officials on Monday said the 15 million cubic metre shipment planned by Gazprom could not legally be received into Ukraine, as a Kiev court on Sunday banned the Ukrainian state-owned firm from moving Russian gas for the price of 1.6 dollars for 1,000 cubic metres of gas over 100 kilometres. That is the contract shipping price for 2008, according to an Interfax news agency reported.

The Ukrainian reduction came after four days of threats by Ukraine to reduce shipments of Russian gas to Europe if a new gas trade contract is not signed soon.

Ukrainian President Viktor Yushchenko has said that the 2008 gas transit shipment price of 1.6 dollars is unacceptable, and must be increased in a new gas shipment contract.

Gazprom squarely opposes the Ukrainian position, with Russian company's managers saying the transit shipment price charged Russia by Ukraine is fixed by other contracts effective through 2010, and is not subject to negotiation.

Gas transit pricing is only one of several issues dividing Moscow and Kiev in the conflict. Other key disagreements include the price of Russian gas sold to Ukraine, possible payment of hundreds of millions of dollars of penalty fees by Ukraine to Russia, and possible siphoning of Russian gas by Ukraine during the first days of 2009.

The terms of natural gas transfers from Russia to and through Ukraine are critical to both countries' economies. Natural gas exports are Russia's single largest export earner. And cheap natural gas supplies are critical to the competitiveness of Ukraine's steel and chemical industries, sectors long considered by economists in the former Soviet republic to be the main engines of Ukraine's now-ailing economy.

Both countries currently are holding hard-line positions in the dispute, with Gazprom chairman Aleksei Miller demanding Ukraine agree to a natural gas price higher than those prevailing in Europe, and his Naftogaz counterpart Oleh Dubina declaring Ukraine has gas reserves of its own sufficient to outlast any Russian embargo, even if it meant halting all gas shipments to Europe.

A lengthy standoff between Ukraine and Russia over natural gas, with a potential total stop to Russian gas exports to Europe, could have a devastating effect on European energy markets. Roughly one quarter of Europe's natural gas imports come from Russia, and 80 per cent of Russian natural gas exported to Europe gets to market via Ukrainian pipelines.

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