UPDATE 1-EU urges Ukraine, Russia to ensure steady gas flow

Thu Jun 18, 2009 1:49pm EDT

* EU exec wants Russia/Ukraine deal to ensure steady EU gas

* Kiev wants decision on $4 bln credit from banks in 2 weeks

(Adds detail, background)

By Pete Harrison

BRUSSELS, June 18 (Reuters) - Ukrainian state-owned gas firm Naftogaz should seal an agreement with Russia that would ensure uninterrupted gas flows to Europe, the European Commission said after a meeting of its gas experts on Thursday.

The gas coordination group discussed rising tensions between Moscow and Ukraine, the country through which about 80 percent of exports to Europe from Russian gas export monopoly Gazprom (GAZP.MM) flow.

The EU wants to avert a repeat of January's gas crisis when a payment dispute between the two sides led to Russia cutting off supplies into Ukraine, including those destined for Europe.

"The Commission urged both parties, Gazprom and Naftogaz, to reach a stable and long-term arrangement to secure transit towards the EU," the European Union executive said in a statement.

"The European Commission emphasized that all parties should fulfil their legal and contractual obligations as far as transit to EU is concerned," it added.

Ukraine has highlighted difficulties paying for its future imports. That has raised fears of another cut to Russian gas, which accounts for around 25 percent of all EU consumption.

"The possibility of a new gas shortage in summer calls for an in-depth investigation of its impact on the next winter, as this will affect the preparedness of the EU shippers to supply their customers," the Commission said.

Ukrainian officials say they need some $4 billion of credits to buy Russian gas, and hope to get it from European banks.

Naftogaz put the required sum at $4.2 billion but said large-scale borrowing could be avoided if European companies bought more gas than currently needed and stored it in Ukraine. [ID:nLI435747]

Naftogaz deputy chief Ihor Didenko told reporters in Brussels he hoped for a positive preliminary decision from European banks in the next two weeks.

"We do not have enough of our own money to pay for all the quantity of gas we need to buy from Gazprom for Ukrainian consumption and for pumping to underground storage," he said.

Asked whether the group would make a July 7 deadline for paying for Russian gas deliveries in June, he said: "I am not God, so I cannot give guarantees about tomorrow, but we will try our best to follow our contracts." (Reporting by Pete Harrison; Editing by Dale Hudson and Anthony Barker)

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