Russia Threatens To Turn Off Ukraine's Gas

Russia's state-controlled gas supplier Gazprom gave neighboring Ukraine a reprieve of a few hours in a debt dispute, but still said it would stop sending gas to the country of 47 million on Tuesday if an agreement was not reached.

The conflict is being watched nervously in European Union countries that get Russian gas through pipelines crossing Ukraine, fearing a repeat of the supply disruptions that hit during January 2006 when Russia halted gas to Ukraine for several days amid a fierce argument over price hikes.

Facing a threatened cutoff of Tuesday morning, officials of OAO Gazprom and Ukraine's natural gas company Naftogaz negotiated for several hours on Monday. Gazprom initially had demanded that the dispute over the $1.5 billion debt be resolved by midnight Monday to avoid a gas stoppage at 10 a.m. Tuesday, but Gazprom spokesman Sergei Kupriyanov said the talks had been adjourned to Tuesday, and that the cutoff time was pushed back to 6 p.m. (1000 Eastern).

Kupriyanov denied the Ukrainian Cabinet's claim that the parties reached a compromise in Monday's talks and Gazprom promised not to cut supplies on Tuesday.

A pause in the talks could be connected to Gazprom's party Monday to celebrate its 15th anniversary, which included an appearance by Deep Purple, the veteran English hard-rock band beloved by Gazprom chairman Dmitry Medvedev. Medvedev, who is expected to be elected Russian president next month, smiled broadly and gave thumbs up when he posed for a picture with Deep Purple after the concert.

Gazprom says it would cut only Russian-origin gas, and that its contracts with customers further downstream would be fulfilled. A repeat of supply disruptions to Europe would renew Western concern about Russia's reliability as an energy partner, even as it undertakes massive new projects to sell gas to Europe.

Kupriyanov, in an interview on Ekho Moskvy radio, did not comment on the claim hours earlier by Ukrainian Prime Minister Yulia Tymoshenko that Russia had promised there would be no cutoff, but his statement that gas would be cut off Tuesday flew in the face of her contention.

The contradictory statements could indicate that each side is trying to play the dispute for political advantage. Although Gazprom insists its ultimatum is strictly a commercial matter, the earlier threatened cutoff would have come almost simultaneously with Ukrainian President Viktor Yushchenko's official visit to Moscow.

U.S. State Department spokesman Sean McCormack said the U.S. was monitoring the situation.

"We'll see how that negotiation process plays out," McCormack told reporters Monday. "We've made it quite clear in the past our views as to the use of commercial levers to try to achieve some political purpose in the end."

The 2006 price dispute was seen as rooted in the Kremlin's unhappiness that the pro-Western Yushchenko had come to power a year earlier. Russia recently fumed about Ukraine's renewed drive to seek membership in NATO and the European Union and move out of Russia's sphere of influence.

Gazprom says Ukraine owes $1.5 billion for gas. Tymoshenko admitted Monday that Ukraine has a gas debt, but gave the lower figure of $1.07 billion.

Tymoshenko pointed out that the debt is owed to RosUkrEnergo, a middleman company half-owned by Gazprom, from which Ukraine buys all its imported gas. Gazprom officials said last week that the debt technically resides with RosUkrEnergo.

The company is one of two murky intermediaries involved in getting gas from Russia and Central Asia to Ukraine. Tymoshenko has vehemently criticized the arrangements as essentially vehicles for diverting funds into private pockets.

Kupriyanov said Monday that Gazprom would be willing to negotiate direct sales to Ukraine, once the current dispute is resolved.

However, it was unclear whether Gazprom's direct sales to Ukraine would include gas from Central Asian countries, including Turkmenistan and Kazakhstan. Ukraine currently pays RosUkrEnergo $179.5 per 1,000 cubic meters of Central Asian gas, whereas Gazprom charges $314.7.

The Central Asian gas travels to Ukraine through Gazprom-controlled pipelines crossing Russia. Most of Ukraine's gas comes from Central Asia, but it was forced to buy additional Russian gas in recent months because an unusually cold winter in Central Asia reduced supplies, Gazprom says.

Kupriyanov said Ukraine now gets about one-fourth of its gas imports from Russia.

But Alexander Burgansky, an energy analyst with the Renaissance Capital investment bank, said the Central Asian cold snap is easing and "Ukraine may not even need (Russian gas) anymore."

He said Ukraine was unlikely to be affected by a Russian cutoff, but Oleh Dubina, the head of Ukraine's natural gas company Naftogaz, said recently the country has no gas reserves and could be forced to "stretch out our hand and beg."