Ukraine Refuses to Open Pipeline, Halting Start of Gas Flows to Europe

http://online.wsj.com/article/SB1231...

By ANDREW OSBORN and MARC CHAMPION

Associated Press

The gas pumping station at Sudzha, Russia.

A done deal to restart Russian gas exports to Europe began to unravel after Ukraine refused to open its transit pipeline network at the last minute, prolonging a dispute that has left swaths of Europe in the cold.

The European Union-brokered deal, agreed on Monday, was expected to see the first transit gas cross the Russia-Ukraine border this morning. Supplies were cut after a pricing quarrel between Russia and Ukraine saw all transit halted, leaving hundreds of thousands of people across the EU without gas in mid-winter.

In a statement on Tuesday, Ukraine's state gas company Naftogaz Ukrainy said it was unable to resume transit because it hadn't received the right paperwork on time from its Russian counterpart, OAO Gazprom.

Russia to Resume Gas Supplies

1:45

Russia and Ukraine sign a new agreement which should restart the flow of gas supplies start into Europe. Video courtesy of Reuters.

"This flagrantly breaches established practice in the reliable functioning of transit pipelines," it said.

Ukrainian energy adviser Bohdan Sokolovsky added that Gazprom had demanded a technically impossible transit route that would have forced Ukraine to cut gas supplies to some of its own domestic users. He said Russia was trying to discredit his country.

An audibly furious Gazprom Deputy Chief Executive Alexander Medvedev called Ukraine's actions "unbelievable."

"We don't have a physical possibility to transit gas to European customers," he said in a phone call with reporters. In addition to not opening the necessary transit pipelines, he said Ukraine had requested some "very strange things" such as Russian gas for its own domestic network. For now, the two countries don't have a contract for Ukrainian domestic needs.

In a sign that Moscow's patience is wearing thin and that the dispute is becoming increasingly political, Mr. Medvedev alluded to U.S. involvement in the dispute.

"It looks like…they (the Ukrainians) are dancing to the music which is being orchestrated not in Kiev but outside the country," he said. Mr. Medvedev said he was referring to an unspecified agreement signed by the U.S. and Ukraine recently, an agreement he called "suspicious."

The EU, which has engaged in laborious shuttle-diplomacy in an attempt to restore supplies, appeared shocked by the sudden volte face.

"There is no excuse not to have gas flows back in the pipelines," European Commission spokeswoman Ferran Tarradellas told reporters in Brussels.

Another spokeswoman said that no gas or very little gas was flowing. "This situation is obviously very serious and needs to improve rapidly," the spokeswoman, Pia Ahrenkilde Hansen, said.

On Monday, Russia, Ukraine and the EU signed -- for the second time -- an agreement setting the terms of reference for teams of experts who will monitor Ukraine's gas-transit network. Moscow had balked at the deal on Sunday, when Kiev attached a separate, unilateral declaration that set out Ukraine's own position.

The second winter gas stoppage to the EU in three years triggered renewed demands for the 27-nation bloc to reduce its dependence on Russian gas. Despite a similar disruption in 2006, the EU has taken few steps to become less reliant on Russia. The EU gets about a quarter of its natural gas from Russia, though in some countries that figure rises to 100%.

An emergency meeting of EU energy ministers in Brussels on Monday called for action to diversify supply routes. A follow-up meeting is set for Feb. 19.

Russian accusations that Ukraine was stealing gas destined for the EU triggered a total cut-off in export flows last week. Ukraine denied theft and said it was merely taking the "technical" gas needed to pump Russia's gas exports to the EU. Ukraine is contracted to provide that gas, but argued that the transit contract was no longer valid after Russia cut gas exports to Ukraine on Jan. 1 amid a pricing dispute.

Write to Andrew Osborn at andrew.osborn@wsj.com and Marc Champion at marc.champion@wsj.com