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Russia Cuts Gas, and Europe Shivers

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« on: January 07, 2009, 09:45:28 am »
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Russia Cuts Gas, and Europe Shivers

MOSCOW — Gazprom, the Russian gas monopoly, halted nearly all its natural gas exports to Europe on Tuesday, sharply escalating its pricing dispute with neighboring Ukraine. The cutoff led to immediate shortages from France to Turkey and underscored Moscow’s increasingly confrontational posture toward the West.

Across Europe, countries reported precipitous drops in gas pressure in their pipelines at the peak of the winter heating season in a bitterly cold January.

In one sign of the extent of the shutoff, Ukraine’s president, Viktor A. Yushchenko, said Gazprom intended to halt all shipments passing through his country, which account for about 80 percent of Russian gas exports to Europe. Europe, in turn, depends on Russia for 40 percent of its imported fuel.

While each side blamed the other for the scope of the latest drop in gas shipments, Russia’s prime minister, Vladimir V. Putin, had personally announced Monday evening on state television that he was ordering a sharp reduction in gas flows, saying Ukraine was siphoning gas from the pipelines without paying.

For Mr. Putin, the escalation comes at a perilous time, as slumping energy prices threaten the fiscal health and political stability that have underpinned his popularity at home.

Some analysts of Russian politics had expected Mr. Putin to become more conciliatory as energy prices fell. Instead, he has taken a hard line in seeking to raise gas prices in Ukraine and perhaps create panic-buying on the international market, where prices of natural gas and oil, Russia’s leading exports, have fallen sharply in recent months.

“They’re still playing hardball, when they have to realize the rules have changed,” Marshall I. Goldman, a senior scholar in Russian studies at Harvard and the author of the recent book “Petrostate: Putin, Power and the New Russia,” said in a telephone interview. “It happened so quickly that I don’t think they’ve had time to realize the implications.”

With temperatures plunging, European leaders expressed mounting concern. Some countries announced rationing for industrial customers to reserve enough heating for residential buildings.

A spokesman for the European Commission said that the cut had come “without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities,” adding, “This situation is completely unacceptable.”

By Tuesday evening, even as more than a dozen European countries faced the risk of shortages of heating fuel, Gazprom threatened additional cuts.

The cutoff appears to have multiple aims.

Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against last summer.

Mr. Putin is also under heavy pressure domestically. Oil and gas exports provide about 60 percent of the Russian budget; oil prices, meanwhile, have fallen by about two-thirds since their peak last summer.

The effects are rippling through the economy. The ruble is being devalued, Russian companies are facing bankruptcy and the government’s huge budget surplus will turn into a deficit next year if prices do not rebound, analysts say.

At the same time, Russia’s relations with the West slumped to post-cold-war lows after Russia sent troops into Georgia in August.

Even as Russia will need foreign investment to offset dwindling energy export revenues, options are dwindling for attracting investors to a country that even in the best of times had a poor track record of property rights.

“The Russian elite mind-set right now is a residue of petro-confidence slamming into the financial crisis,” said Cliff Kupchan, a director at the Eurasia Group, a global risk-consulting firm based in New York. “So in my view, they’re confused about whether to seek help from the international financial system to solve their problems that way or continue a bare-knuckled approach to the world.”

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters, from $179.50 last year.

It also wants to collect what it says are fines for late payments on previous shipments.

Ukraine has in turn demanded that Gazprom pay more to transship gas to Europe.

Executives of Gazprom blamed Ukraine. In an announcement on Monday, Mr. Putin and Gazprom’s chief executive, Aleksei B. Miller, said they would cut 65.3 million cubic meters of gas supplies for Europe. In fact, the reduction totaled about 240 million cubic meters, according to Gazprom.

Company officials said that they had intended to ship more fuel on Tuesday, but that Ukraine had blocked export pipelines. Ukrainian energy officials denied this.

“We are shocked that we’re not in the position to bring gas to the border of Ukraine because they shut down the pipelines,” Aleksandr I. Medvedev, a deputy chief executive of Gazprom, said at a news conference in London. “There is no reason to blame Russia or Gazprom.”

Oleh Dubyna, the director of Ukraine’s national energy company, Naftogaz,said he would fly to Moscow on Thursday to resume negotiations.

Gazprom’s spokesman, Sergei V. Kupriyanov, said the company was “ready to begin negotiations at any moment.”

A compromise may be harder to find this year, Thane Gustafson, an expert on Russian energy at Cambridge Energy Research Associates of Massachusetts, said in a telephone interview from Washington. “We’re talking about two sides that are under extreme constraint,” he said.

Among the pipeline routes that were affected the most was the so-called Western Balkan route, affecting supplies to Romania, Bulgaria, Macedonia, Greece and Turkey, said Ferran Tarradellas, a spokesman for the European Union energy commissioner, Andris Piebalgs.

Substantial cuts could also affect Slovakia, Hungary, Slovenia, Italy and Austria, Mr. Tarradellas said.

In Turkey, flows of gas through a pipeline that runs from Ukraine stopped completely on Tuesday morning, said the country’s energy minister, Hilmi Guler. The pipeline is a major source of gas for Turkey, which imports nearly all its energy.

Several other sources, including the Blue Stream pipeline, which carries gas to Turkey from Russia under the Black Sea, were unaffected, however.

In Prague, the Czech pipeline operator RWE Transgas said the flow of gas had diminished by 75 percent. It said it was offsetting the decline with purchases of Norwegian gas delivered through another pipeline, and by tapping reserves.

Slovakia said it would declare a state of emergency over a drop in supplies, the Czech news agency CTK reported on Tuesday. S.P.P., Slovakia’s main gas supplier, said it might have to restrict gas supplies to businesses.

Bulgarian leaders announced that natural gas supplies would be slashed by two-thirds, forcing the nation to rely on reserves.

Germany, Russia’s largest customer in Europe, appeared better prepared. The chief executive of the German utility E.ON, Bernhard Reutersberg, said there would be no cuts to residential or commercial customers.

Back in Moscow, at another televised meeting late Tuesday, Mr. Miller of Gazprom told Mr. Putin that the company would halt all shipments of gas to the Ukrainian border if Ukraine continued to block exports, suggesting a total embargo might follow.

“I don’t see why the economic crisis would change the style,” Lilia Shevtsova, the author of “Putin’s Russia” and a researcher at the Moscow Carnegie Center, said in a telephone interview, speaking of the prime minister.

“He has been pretty successful with these policies,” she said, noting that the European Union had already resumed partnership talks with Russia that were frozen five months ago after the war with Georgia.


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« Reply #1 on: January 08, 2009, 08:29:19 am »
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We're affected to by having a nation rich with mineral wealth.

No other countries can afford us. They can't pay us.

they lowered our dollar so countries could afford to buy.

I don't think I would do it that way....It worked in the past but what

is going to happen if we run out of mineral wealth?

People are just going to have to think of other ways to survive this

gigantic economic meltdown.

Unless we start to downsize and moderate our habits, our grandchildren are going to be very, very unhappy campers as it will be left up to them to clean up our mess and that is the shame of it, all.

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