Russia restarts gas supplies to Europe via Ukraine

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(Agencies)
Updated: 2009-01-20 22:17

PISAREVKA, Russia -- Russian natural gas began flowing Tuesday into Ukraine after a nearly two-week cutoff that left large parts of Europe cold and dark and underscored the continent's vulnerability and dependence on Russia's energy.

Russian PM Vladimir Putin, right, looks at his Ukrainian counterpart Yulia Tymoshenko as they speak to the media early Sunday, Jan. 18, 2009, shortly after their talks aimed at restoring Russian natural gas supplies to Europe. Russia and Ukraine announced a deal Sunday to end the bitter dispute that blocked Russian natural gas from Europe for nearly two weeks. [Agencies]

Russia's gas monopoly Gazprom began pumping gas into Ukraine at around 10:30 a.m. Moscow time (0730GMT), spokesman Boris Sapozhnikov said by telephone from the Sudzha metering station. Officials at another station on the Russian-Ukrainian border, Pisarevka, also confirmed gas was being received.

Officials said the shipments could take up to 36 hours to cross Ukraine, which is the size of France, and reach European customers. Europe receives about a fifth of its natural gas from Russia.

Russia halted the supplies on Jan. 7 as it argued with Ukraine argued over 2009 gas prices and allegations that Ukraine was stealing gas destined for Europe.

More than 15 nations in the Balkans and Eastern Europe were left scrambling for alternative energy sources, with factories shut down and millions of people shivering in unheated homes. Bulgaria and Slovakia, in particular, rely almost entirely on Russia for gas.

Many questioned whether Russia and Ukraine could be reliable energy suppliers, and criticized both for holding Europe "hostage" during their contract dispute.

Late Monday, the two countries resolved their dispute with Russian Prime Minister Vladimir Putin and Ukrainian counterpart Yulia Tymoshenko signing a deal brokered by heads of Gazprom and Ukraine's Naftogaz.

The dispute had been complicated also by geopolitical struggles over Ukraine's future and over lucrative export routes for the energy riches of the former Soviet Union.

The new agreement calls for Ukraine to receive gas at a 20 percent discount from this year's average European price, which Russia says is $450 per 1,000 cubic meters.

On Tuesday Gazprom's chief Alexei Miller told Russian President Dmitry Medvedev that Ukraine would pay $360 per 1,000 cubic meters of Russian gas in the first quarter, compared with last year's price of $179.5.

However, natural gas prices for Europe are expected to fall sharply this year, due to the reduction in oil prices. By midsummer, Ukraine could be paying as little as $150 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow's Alfa Bank.

Russia, meanwhile, will not have to pay higher transit prices to use Ukraine's pipelines this year. Putin said Ukraine would have to pay full price for Russian gas in 2010, and Russia would pay market prices for transit.

Tymoshenko said the deal would save Ukraine billions of dollars. But there was no celebration in the camp of her political rival President Viktor Yushchenko, whose energy adviser said Ukraine was giving more than it was getting out of the deal.

Bohdan Sokolovsky said Ukraine would face major economic difficulties as a result of the price increase. "This will be a difficult phase, but I hope a temporary one," he said.

Because Russia will continue to pay last year's transit fee of $1.70 per 100 kilometers, it would get a 60 percent discount, as opposed to a 20 percent reduction for Ukraine, he said.

Ukraine would end up paying an average price for 2009 of $235-$240, after the expected drop in prices this year, he said.