Russia continues to withhold gas to Ukraine

[January 02, 2009]  MOSCOW (AP) -- Ukraine sought support Friday in European capitals a day after Russia cut off gas supplies and hardened its stance on prices.

But the two countries pledged they would keep supplies flowing to the rest of Europe, and Russian television reported early Friday that there were no reports of interruptions in gas shipments beyond Ukraine.

In 2006, customers as far away as Italy and France were affected after Russia cut off gas to Ukraine in a similar dispute over prices and overdue bills. The European Union depends on Russia for about a quarter of its gas, much of it flowing through pipelines across Ukraine.

The New Year's Day shut down of gas supplies to Ukraine, with a population of 46 million, came after Ukraine made a $1.5 billion overdue payment. Russia demands a further $600 million, including $450 million penalties for the late payment for gas shipped in November and December.

There were no reports of face-to-face talks by 1 p.m. Moscow time (1000 GMT) Friday. Instead, a delegation headed by Energy Minister Yuriy Prodan and including the deputy chief of gas company Naftogaz, Volodymyr Chuprun, headed for Europe, with the first stop to be in Prague and the last in Brussels.

Russia also wants higher prices for 2009, while Ukraine says Russia should pay more to ship through its pipeline network to Europe.

Ukrainian pipelines carry 80 percent of the gas Russia sells to European Union customers.

The long-running commercial dispute also reflects strained relations between the two former Soviet nations that developed after Ukraine's 2004 Orange Revolution, which brought a pro-Western government to power.

Ukraine has since sought to join NATO and supported Georgia during its brief war with Russia in August -- moves that angered the Kremlin, which has accused the West of seeking to surround and weaken Russia.

The recent decline in energy prices has hit Russia hard, and Gazprom has been hit by a decline in demand.

Experts say efforts to resolve the dispute are also hampered by divisions within Ukraine's leadership. President Viktor Yushchenko and Prime Minister Yulia Tymoshenko are bitter political rivals.

Despite the continuing cutoff and apparent absence of talks, there seems to be little sense of urgency over the deadlock in Kiev or Moscow. Experts say both Ukraine and Europe have significant stockpiles of gas.

At one point, Russia's state-controlled gas monopoly, Gazprom, said it would accept $250 per one thousand cubic meters of gas, close to the $235 that Ukraine has offered.

But late Thursday Gazprom CEO Alexei Miller toughend his company's stance, resuming an early demand of $418 per thousand cubic meters, the price Russia will charge European customers over the next few months.

Those prices are expected to fall considerably later this year, as the gas market begins to reflect the fall in world oil prices.

Miller said the $250 offer was taken off of the table after Ukraine rejected it.

Last year, Ukraine paid $179.50 per 1,000 cubic meters of gas. Gazprom says that the price it pays Central Asia, which provides it with a significant percentage of its gas, has risen sharply.

Kiev also wants to raise the cost of transporting gas from $1.70 to $1.80 per 1,000 cubic meters per 100 kilometers. Russia has rejected the proposal.

Gazprom said Thursday it had boosted natural gas deliveries through other pipelines to Western Europe. It also said it would monitor gas shipments into and out of Ukraine, in an effort to prevent Ukraine from siphoning gas meant for Europe.

[Associated Press; By DOUGLAS BIRCH]

Associated Press writers Maria Danilova in Ukraine, Lynn Berry in Moscow and Robert Wielaard in Brussels contributed to this report.

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