russian gas games getting serious

This situation is likely to put pressure on markets ...

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Gazprom says Ukraine unilaterally shut down gas export
Tue Jan 6, 2009 6:12am EST

LONDON, Jan 6 (Reuters) - Ukraine shut down three Russian gas export pipelines early on Tuesday and is unwilling to negotiate a settlement to the gas dispute that has slashed supplies to Europe in midwinter, Gazprom (GAZP.MM) Deputy Chief Executive Alexander Medvedev said.

Russian gas supplies via Ukraine to south-eastern Europe and Turkey were halted on Tuesday and Austria and the Czech Republic reported sharp falls in flows in a deepening row between Moscow and Kiev. [ID:nL6410970

Medvedev told journalists in London on Tuesday gas exports had fallen to one seventh of normal flow rates, accusing Ukraine of shutting three export pipelines in the early hours of the morning as the row rumbles on.

"We became hostage of irresponsible behaviour of transit country ... The situation is very serious," he said.

"Russia has requested that the gas which was stolen, which is equivalent to 65 million cubic metres, should be returned."

Medvedev said European countries should consider taking legal action against Ukraine, adding the cut-offs could lead to technical problems with the Russian gas export pipeline network.

"It's no longer a question of commercial risk but of technological risk," he said, without elaborating.

Russia switched off gas supplies intended for Ukraine's domestic use on Jan. 1 after failing to resolve a dispute over how much Kiev should pay for its gas.

The cuts have slashed supplies of the key winter heating and power generation fuel in countries close to Ukraine and threaten to disrupt supplies in the rest of Europe if not resolved soon.

Medvedev said Ukrainain state gas company Naftogaz was unwilling to work towards a compromise and had not come up with any serious proposals that could restore supplies.

"They should come back to the negotiating table but with a constructive proposal, not crazy ideas," he said.

Medvedev declined to say what price he wanted Ukraine to pay for gas in 2009, adding that prices he had mentioned during the row -- from $250 to $450 per 1,000 cubic metres of gas -- were just the range that Gazprom was prepared to consider.

"We are not offering, we are just highlighting different prices," he said.

Ukraine paid $179.50 per 1,000 cubic metres of the gas it got from Russia last year after agreeing to a 30 percent hike in 2007 but the country, which has been hit hard by the global economic crisis is reluctant to pay much more.

European Union customers pay about $500 per 1,000 cubic metres for their Russian gas, but the price -- which follows oil with a six-month lag -- is set to drop in line with crude, which has lost two-thirds of its value since peaking in July 2008. (Reporting by Tom Bergin and Chris baldwin; writing by Daniel Fineren; editing by James Jukwey)