Russian Gas Reaches Europe Again Via Ukraine

APSlovakia's economics minister learning about the restoration of gas flows.
Russian gas reached Europe via Ukraine for the first time in two weeks on Tuesday after Moscow and Kiev ended a contract row that cut supplies to about 20 European countries.

Slovakia and Hungary said they had begun receiving gas, though pipeline operators said it could be Wednesday before supplies reach other parts of Europe, where the cutoff forced some countries to ration supplies to customers in mid-winter.

"Gas is not only flowing in the direction of Europe, but it is flowing to Europe," said Alexander Medvedev, deputy chief executive of Gazprom.

Ukraine confirmed that it was receiving gas from Russia and said it would deliver it to Europe as quickly as possible.

The gas transmission arm of Hungarian oil and gas group MOL said it started receiving gas at 12:20 GMT. Slovakian Economy Minister Lubomir Jahnatek said gas had arrived there too, while Romania's pipeline operator said flows would restart "within hours."

The dispute reflected political tension between Moscow and Kiev on a range of issues. Russia strongly opposes a bid by its former Soviet neighbor to join the NATO military alliance.

Even when gas flows return to normal, the effects will linger. Russia's reliability as an energy source as well as Ukraine's transit credentials are under renewed scrutiny, and Europe is anxious to diversify supply so it cannot fall victim again to local disputes.

"This bilateral dispute has harmed the confidence placed in the two countries," the Czech EU presidency said in a statement.

European Commission President Jose Manuel Barroso said he was considering taking legal action over the dispute.

"We must not allow ourselves to be placed in this position in the future. This cannot become an annual event. We have to stop simply talking about energy security in Europe and start doing something about it," he told a news conference in Brussels.

Gazprom said that under the new contract, Ukraine would pay $360 per 1,000 cubic meters of gas in the first quarter of this year, double the $179.50 Kiev was paying in 2008.

The price is likely to come down later this year as gas tracks falling oil prices, but it could still be a huge burden for a Ukrainian economy struggling with debt and sharp falls in the hryvna currency.

Ukrainian Prime Minister Yulia Tymoshenko said she expected the average price over this year to be $230 to $250 per thousand cubic meters and that Ukraine would limit immediate purchases.

"In the first quarter, when the price is highest, there is no need to buy large quantities of gas because we have gas in reserves remaining from last year," she told a news briefing.

Gazprom CEO Alexei Miller warned that if Ukraine were to fall behind in its payments, the firm would raise the price and demand that Kiev pay for all its gas in advance — measures that could cripple the fragile Ukrainian economy.

Fears had persisted that political infighting in Kiev could cause the deal to unravel. Aides to Ukrainian President Viktor Yushchenko, a bitter rival to Tymoshenko, accused her of signing an agreement that would hurt the economy.

But Yushchenko's deputy chief of staff, Oleksander Shlapak, said the president lacked the legal authority to annul the deal.

Yushchenko himself said, "We should do everything to support the government's position."

Austrian oil and gas group OMV said Russian gas could reach its hub in Baumgarten, near Slovakia, on Wednesday, and a Turkish energy ministry source said the flow of Russian gas into Turkey should be back to normal on Thursday.

Oil prices fell to just over $33 a barrel early on Tuesday, partly in response to the resumption of gas supplies. The gas disruptions had driven up demand for oil products, used as alternatives to gas in heating and power generation.

Russia provides about a quarter of Europe's gas requirements and pumps 80 percent of this via Ukraine.

In Bulgaria, almost entirely dependent on Russian energy, many households were left without adequate heating and hundreds of firms have had to scale down production.

"The impacts on the Bulgarian economy are catastrophic," Economy and Energy Minister Petar Dimitrov said. "The impact very much resembles that of a terrorist attack."

Russia cut flows to Ukraine itself on Jan. 1 after the two sides failed to agree on a 2009 supply contract. Six days later, export flows to Europe through Ukraine also ceased after Russia accused Kiev of siphoning off gas intended for export.

Ukraine denied stealing gas and countered that Moscow was trying to blackmail European customers by halting gas supplies.