Page last updated at 19:26 GMT, Thursday, 1 January 2009

Russia reassures Europe over gas

A Ukrainian gas holding station in Mryn, 130km from Kiev, 16 December
Much of the EU's gas from Russia arrives via Ukraine

Russia has assured European Union countries they will face no disruption after it halted gas supplies to Ukraine in a row over unpaid bills and prices.

Russian gas giant Gazprom said it had increased the volume of gas flowing to the EU via the Ukrainian pipe network.

Ukraine has also guaranteed the transit of supplies to the West.

Pipes across Ukraine carry about a fifth of the EU's gas needs. Ukraine insists it has paid off its debts to Gazprom, but Russia contests this.

The two countries have also failed to agree on a price for 2009.

The chief executive of Gazprom, Alexei Miller, warned Ukraine that it would have to pay $418 (288; 299 euros) per 1,000 cubic metres of gas in 2009, after turning down a lower offer of $250.

Ukraine's state energy firm Naftogaz increased the amount it said it was prepared to pay to $235 per 1,000 cubic metres - $15 short of the original amount Russia was demanding.

'Compromise close'

Gazprom said it turned off the taps at 0700 GMT on Thursday, when its contract to supply Ukraine ended.

Naftogaz confirmed that supplies dropped off steadily on Thursday, and that it had started pumping gas from its reserves, which it says are sufficient for several months.

Europe's gas pipeline network

But Gazprom said it had also stepped up volumes for European consumers beyond Ukraine to 326 million cubic metres per day from its usual level of 300.

So far, there have been no reports in EU countries of reduced supplies.

The move followed the collapse of talks to end the dispute.

Gazprom said the contract depended on the full settlement of $2bn in gas bills and late-payment fines.

Naftogaz said it had paid $1.5bn (1bn) in outstanding bills to RosUkrEnergo - a Switzerland-registered gas trading company acting as an intermediary - but not the fines imposed by Gazprom.

However, Ukrainian President Viktor Yushchenko said he was hopeful that negotiations on a new contract could be completed by 7 January, and that the sides were "close to a compromise".

'Severe consequences'

The US has urged Moscow and Kiev to consider the possible humanitarian implications of the supply disruptions.

They have a right to cut the supply if money is not paid. This is the rule of the free market economy
Vladimir, Kiev, Ukraine

White House spokesman Gordon Johndroe said: "We hope that Russia and Ukraine can resolve their dispute over the gas debt and the terms of their natural gas supply arrangements in a transparent, commercial manner."

Earlier, the new holders of the EU presidency, the Czech Republic, urged the parties to "rapidly reach a successful outcome".

"All existing commitments to supply and transit must be honoured," it added.

The EU is keen to avoid a repetition of a similar row between Gazprom and Ukraine at the beginning of 2006, which led to gas shortages in several European countries.

Russia's Prime Minister Vladimir Putin earlier warned Ukraine that disruptions to Europe's supply would have "very severe consequences" in terms of its relations with both Russia and EU countries.

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