Russian Fuel Cuts Felt Across Europe
Putin Blames Ukraine for Standoff Affecting More Than a Dozen Nations

By Philip P. Pan
Washington Post Foreign Service
Wednesday, January 7, 2009

MOSCOW, Jan. 6 -- The flow of natural gas from Russia to Europe plummeted Tuesday, with more than a dozen countries reporting a complete halt or sharp drops in fuel shipments as Russia deepened its gas embargo against neighboring Ukraine in the middle of a winter cold spell.

The disruption, which was felt as far away as France, Italy and Germany and caused cuts in electricity and heating in the Balkans, escalated a politically charged fuel-price dispute between Russia and Ukraine that has renewed concern about Europe's dependence on Russian gas and Ukrainian pipelines.

Russia and Ukraine blamed each other for the sudden drop in fuel deliveries, and neither seemed willing to budge in the standoff six days after Gazprom, the Russian gas monopoly, cut all supplies to Ukraine. Direct talks between the two sides, however, appeared set to resume Thursday for the first time in more than a week.

Bulgaria, Croatia, Greece, Macedonia, Romania, Serbia and Turkey said gas from Russia coming through Ukraine stopped altogether Tuesday, and 12 other countries reported major reductions. Europe's largest countries say they have reserves and access to other supplies that could last weeks, but even Germany predicted energy shortages if Russian deliveries were not restored and temperatures remained low.

Smaller countries in Eastern Europe and the Balkans appeared hardest-hit. Croatia said it was reducing supplies to industrial customers, Hungary ordered power plants to begin burning other fuel if possible, and Slovakia's gas distributor declared a state of emergency.

Bulgaria, which relies almost entirely on Russian gas, said it was in a "crisis situation," with reserves that could disappear within days, factories shutting down, two cities left without gas, thousands of households without heat and the government preparing to restart a shuttered nuclear reactor.

In Sofia, the Bulgarian capital, the central heating system was operating at reduced levels, with some neighborhoods receiving no heat at all, the national news agency Focus reported. "We are facing a serious natural gas crisis where Bulgaria is a victim of the conflict between Russia and Ukraine," Prime Minister Sergei Stanishev said, adding that priority was being given to public buildings, schools and hospitals.

The European Union, after days of statements expressing confidence in reserve supplies and reluctance to mediate in what it described as a business dispute, condemned the gas shortfalls as "completely unacceptable," adding that they occurred "without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities."

The Czech Republic, which holds the rotating E.U. presidency, said it was considering the "extreme option" of a three-way summit with Ukraine and Russia to resolve their dispute, which centers on Gazprom's demands that Ukraine pay more than $600 million in late fees on overdue bills and a higher price for gas in 2009.

Russia has charged Ukraine and other former Soviet republics a subsidized rate for gas for more than a decade and has insisted in recent years that they begin to move toward market-based prices. But Ukraine, which has been hit hard by the global financial crisis and is struggling to avoid an economic meltdown, says it cannot afford the increase demanded unless Russia pays more to use its pipelines.

Complicating the talks are charges of political motives by both sides. Ukrainian officials say the Kremlin is trying to weaken their pro-Western government, which is seeking NATO membership and backed Georgia in its August war against Russia. Russian officials have accused Ukraine of provoking the crisis to stir up anti-Russian sentiment in Europe.

Chris Weafer, chief strategist at Uralsib, an investment bank in Moscow, said Europe needs to act as a mediator in the dispute because Russia and Ukraine "have reached the point they're entrenched in their positions, and it is almost impossible for either side to back down."

Weafer said Ukraine will probably also need financial assistance since it was unable to keep up with gas payments even at last year's lower price.

Gazprom said Ukraine shut down three export pipelines without warning Tuesday, forcing Russia to cut deliveries to one-seventh their normal levels. Naftogaz, Ukraine's state energy firm, denied the accusation, saying it was Russia that halted deliveries through the pipelines.

"We did not turn anything off. There is simply no gas there," said Naftogaz spokesman Valentyn Zemlyansky.

The reductions came a day after Russian Prime Minister Vladimir Putin accused Ukraine of stealing fuel meant for other countries and ordered Gazprom to cut deliveries using Ukrainian pipelines in retaliation. Gazprom said it would reduce shipments daily by the amount it believed Ukraine was siphoning off and try to compensate by sending more fuel to Europe by other routes.

Gazprom said it sent 64.7 million of the 130 million cubic meters of gas requested by European customers Tuesday and had expected Ukraine to make up the difference, an amount equal to what it says Ukraine has stolen. The company said Europe received only 40 million cubic meters.

Appearing on television with Gazprom chief executive Alexei Miller for the second consecutive night, Putin argued that Ukraine was stealing gas "not from Russia, but from Western consumers, because they bought and paid for these goods."

Miller said that theft was "increasing hour by hour" and had reached 15 percent of all Russian fuel shipments through Ukraine. If Ukraine refused to deliver the gas to Europe, he added, Gazprom would "see no reason for pumping gas to the border."

Ukraine has denied any theft, saying it has enough gas in storage for its own needs through April. But it says it is using about 25 million cubic meters every day to fuel the pumping stations on its pipelines and guarantee smooth delivery of gas to the rest of Europe.

Ukraine's President Viktor Yushchenko said the country was using its own gas to maintain pressure in the pipeline and keep Europe supplied. But he warned that Russia might suspend all gas shipments.