Tuesday, November 3, 2009

Putin warns Europe about winter gas supply amid more rows with Ukraine

COMMENT: it's time to see through Gazprom
Yesterday, Mr Putin urged the EU to lend Ukraine money to buy gas and accused it of being ungenerous. “Let the Europeans throw in a lousy billion,” he said. “Why have they gotten so stingy down there? Let them get something out of their pockets.”

The Russian Prime Minister’s warning of a gas conflict relates to mounting tension in Ukraine between Yulia Tymoshenko, the country’s Prime Minister, and President Yuschenko. Both are candidates in presidential elections due to be held in January and Russia hopes that the winner will be more sympathetic to Moscow than the incumbent. According to Mr Putin, Mr Yuschenko is blocking the transfer of funds needed to pay for gas. Mr Putin insists that Ukraine has the funds to pay its gas bills but the money is being withheld. “According to the International Monetary Fund, Ukraine does have the money. Furthermore, the IMF thinks paying for Russian gas out of Ukraine’s foreign reserves is possible,” Mr Putin said.

A fifth of Europe’s gas arrives in Europe through pipelines that traverse Ukraine. In January 2006, arguments over unpaid gas bills led to Gazprom cutting supplies to Ukraine, which in turn led to severe shortages felt across Central Europe and in Germany, Italy and France.

However, the EU has been reluctant to step into the breach and lend money to Ukraine to pay for gas.

The recession is increasing the financial pressure on Gazprom to secure payment, but it is also likely to stay the utility’s hand in any new winter threat to cut off supplies. Demand for gas has fallen sharply in Europe amid the contraction in industrial activity and Gazprom will be reluctant to take any action that might reduce shipments to European customers.

Europe’s big utilities, including E.ON, of Germany, Eni, of Italy, and GDF-Suez, of France, are clamouring for price renegotiations after a fall of almost two thirds in the spot price of natural gas. Plentiful supplies of liquefied natural gas (LNG) are undercutting Russia’s pipeline gas markets.

To avoid Ukraine, Gazprom is building two new pipelines, including Nordstream, linking Russia and Germany under the Baltic Sea, and South Stream, under the Black Sea from Russia to the Balkans.

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