Russia cuts Europe off completely from its gas

The Ukraine-Russia row over natural gas has escalated to a new high.  Now, state-owned Gazprom has completely cut off supplies to Europe through the Ukrainian transit route.  It still remains unclear what the ultimate aim of the Russians are in bringing the issue to this critical state.  Nevertheless, it is generally believed that Russia is making as much a political statement about NATO expansion, the disregard of Russia’s sphere of influence, and the dependency of the European Union on Russia for its energy needs.  One should expect a political response from the EU shortly.

Russian natural gas exports via Ukraine to western Europe were completely shut off on Wednesday, as Russia and Ukraine blamed each other for a deepening row that is threatening supplies across the continent.

”This morning, at 7:40am, the Russia side completely cut off all gas supplies coming into Ukraine – meaning supplies to Europe via Ukraine,” said Valentyn Zemlyansky, spokesperson for Naftogaz, the Ukrainian gas utility. “Let me reiterate, they cut off gas en route to Europe, because we have been solely consuming gas from our reserves since January 1. The Russian side took this drastic move without warning.”

But Gazprom, the Russian natural gas monopoly, said that Ukraine was the one that cut off the pipeline access for its exports to Europe. ”Today Ukraine has closed the last of four pipelines to Europe,” said Alexander Medvedev, Gazprom deputy chief executive. He told Reuters that Russian gas supplies towards Ukraine were currently running at 40 million cubic metres per day, but that Kiev was not exporting these volumes but keeping them for domestic needs. ”This gas is not exported and remains in Ukraine,” he said. Gazprom usually supplies around 300 mcm per day to Europe via Ukraine.

As some companies and schools in Bulgaria, one of the countries most dependent on Russian supplies, were shut, others tapped into stocks and alternative supplies to make up for the loss of Russian deliveries. Polish gas monopoly PGNiG said Russian gas deliveries to Poland via Ukraine were completely halted on Wednesday, and the same was true of supplies to the Czech republic. Russian gas flows to Austria stopped completely, oil and gas group OMV said, adding it was drawing on reserves, domestic production and other imports to guarantee gas supply to customers. Italy said it had begun tapping its stockpiles of natural gas after supplies of Russian gas to Italy reached new lows. Adriean Videanu, Romania’s economy minister, said all gas supplies to his country had been cut as of Wednesday morning, after falling 75 per cent on Tuesday.

Both Ukraine and Russia, however, have said they would begin negotiations on Thursday to try to reach a compromise on a new gas supply contract for Ukraine for 2009. Russia had cut off gas supplies to Ukraine on New Year’s day after neither could agree on such a price for a new contract.

Mirek Topolanek, the Czech prime minister who holds the EU’s rotating presidency, said that Thursday was a “key day for a decision on what is to be done next…it’s obviously unacceptable that EU member states suffer as a result of a contractual violation”.

Update: The European Union has now responded threatening escalation if supplies are not restored within 24 hours. Stay tuned.
Story: EU warns Russia and Ukraine to restore gas supplies or face escalation of dispute – Telegraph

And, for what it’s worth, I am sympathetic to the Russian stance here.

Sources
Russian gas supplies to Europe cut off – FT
Comment: Gazprom is not a market player, it’s a political weapon – Times Online
Gazprom brands Ukraine ‘a barbarian’ in gas row – Times Online
Europe begins to freeze as gas taps are turned off in energy war – Times Online