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Natural Gas Dispute

DW staff (th)
December 23, 2008

Germany has kept its stores of natural gas full as it warily follows a new year-end dispute between Russia and Ukraine. At the same time, Russia is warning that the era of cheap gas is coming to an end.

A Ukrainian worker operates valves in a gas storage and transit point in Boyarka
Ukraine says it has enough reserves to keep supplying EuropeImage: AP

Germany's economics ministry spokeswoman said gas distributors had assured Berlin there would be no shortages in Germany because of the dispute.

"The storage is pretty full," she said on Tuesday, Dec. 23, referring to the rock formations into which Germany injects vast quantities of Siberian natural gas so that it has gas to heat buildings and run factories through the winter.

Russia could cut supplies

The Russian gas-export monopoly, Gazprom, and the Russian government have warned European consumers of possible disruptions in supplies pumped through Ukrainian territory at the start of 2009.

Gazprom is threatening cuts to Kiev over a $2.4 billion (1.8 billion euro) debt Russia says Ukraine's state gas company Naftogaz owes Gazprom.

Arial view of Siberian landscape
Germany is heavily dependent on natural gas from SiberiaImage: picture-alliance/ dpa

Ukraine claims it only owes $814 million. Russia wants Ukraine to pay its debt by discounting transit fees in 2009.

"So far, no solution has been found because of the non-constructive position of the Ukrainian party," Russian First Deputy Prime Minister and Gazprom Chairman Viktor Zubkov was quoted by news agency Interfax as saying on Monday.

Russia has also warned that prices could go up in the new year. Ukraine currently pays Russia $179.5 for 1,000 cubic meters of gas but that could jump to $400 for 1,000 cubic meters starting next year.

Ukraine believes it should pay $100 per 1,000 cubic meters for Russian gas in 2009, Ukrainian President Viktor Yushchenko's press secretary said last week.

Russia could cut supplies

About 80 percent of Russian gas exports to western Europe use pipelines across Ukrainian territory.

A breakdown in a similar gas pricing dispute between Gazprom and Ukraine's Naftogaz at the start of 2006 led to fuel shortages and a price spike across Europe in the dead of winter.

An engineer looks at a screen
Russia expects a steep increase in gas prices for 2009Image: AP

In recent weeks, Ukraine accumulated more than 16 billion cubic meters of gas in underground reservoirs, sufficient to cover Ukrainian gas needs well into 2009, said Oleksander Shlapak, a senior spokesman for President Viktor Yushchenko.

"We give a full guarantee of continued gas deliveries (to Europe)," Shlapak said. "But if there is a cut-off (by Russia) we are prepared to cover our needs from reservoir reserves."

Ukraine has been hard hit by the global financial crisis, with its economy shrinking 14.4 percent in the past year. Since September, Ukraine's currency, the hryvnia, has lost about half of its value compared with the dollar.

The IMF made a $16.4 billion loan to Ukraine in November to help recapitalize banks and get the country through the current financial crisis.

Putin: say goodbye to cheap gas

Prime Minister Vladimir Putin, center, gestures as he visits the oil port of Kozmino
Putin expects prices to rise over the long termImage: AP

Russian Prime Minister Vladimir Putin, speaking at the Gas Exporting Countries Forum (GECF) on Tuesday, said that the era of cheap gas prices was ending.

"The expenses necessary for developing fields are rising sharply, and this means that despite the current problems in finances the era of cheap energy resources, of cheap gas, is of course coming to an end," Putin said.