UPDATE 2-Ukraine halt to Russia gas talks revives disruption fear

Tue Dec 18, 2012 7:38am EST

* Gas talks postponed between Putin and Yanukovich

* Ukraine wants to pay lower price for Russian gas

* Analysts see little chance of real gas war

* Putin likely to talk pipelines in Brussels on Friday

By Alexei Anishchuk and Pavel Polityuk

MOSCOW/KIEV, Dec 18 (Reuters) - Ukraine's president pulled out of gas price talks with Russian leader Vladimir Putin at the last minute on Tuesday, raising concern about the reliability of supplies to Europe before a Russia-EU summit.

The postponement revived memories of disputes between the two countries that led to reductions in the supply of Russian gas to Europe through Ukraine's pipeline network in 2006 and 2009.

Viktor Yanukovich, whose country is a transit route for Russian gas, had been due to meet the Russian president in Moscow to try to secure a reduction in Ukraine's fuel bill.

But Kremlin foreign policy aide Yury Ushakov said Yanukovich had postponed the talks because more time was needed to prepare documents they had planned to sign.

"Yanukovich had planned to visit today and it has been decided to delay this visit," Ushakov said. "It is necessary to conduct additional expert work to complete all the documents which we had initially planned to sign."

Putin is due to meet European Union (EU) leaders in Brussels on Friday, and energy is likely to be high on the agenda, but a repeat of what have become known as the "New Year gas wars" is not likely.

Cuts to European gas supply transiting Ukraine during earlier disputes exacted a cost for both countries, prompting Europe to step up an energy-security agenda, including reduction of transit risk and diversification of supply away from Russia.

Russia's gas export monopoly Gazprom, an important contributor to the Russian state budget, depends on European exports for the majority of its revenues, while Ukraine depends on transit fees from Russia to fill its state coffers.

"I do not expect a new gas war. There might be some kind of information warfare," Ukrainian political analyst Volodymyr Fesenko said.

"The visit has been postponed because they apparently failed to agree but I do not think this will lead to escalated tension. If we (Ukraine) stick to the current agreements, and we will, there should be no escalation."

While in Brussels, Putin will portray Russia as a reliable supplier and present his country's case against EU open-market measures which, Moscow says, discourage investment in infrastructure that helps secure flows of gas to Europe.

Questions about compliance with equal-access rules hang over the South Stream pipeline project in particular. South Stream is to bring gas directly from Russia via the Black Sea floor to southeastern Europe, bypassing Ukraine's transit network.

Ukraine, for its part, stands to lose transit revenues if South Stream goes ahead and could benefit from a standoff between Russia and the EU over the pipeline's compliance with access rules.

"Ukraine has been complaining to the EU about Russia and its plans to build South Stream," Valery Nesterov, an analyst with Sberbank investment research, said.

"Ukraine wants the EU to pour cold water on South Stream. I think there is no threat to Russian gas flows to Europe. It's hard to imagine that Gazprom would become an instigator of such an event. It's not in Gazprom's best interests. And it is in Ukraine's interests to present itself as a safe transit country."

Kiev is struggling to afford its fuel bill to Russia under the current terms, which stem from a 2009 agreement over which Ukraine's former prime minister, Yulia Tymoshenko, was jailed on charges of abuse of office.

Kiev says the price of $430 per 1,000 cubic metres it is paying this quarter is too high but has balked at demands for big concessions to Moscow to achieve a reduction.

These could include joining a customs union with Russia, Ukraine and Belarus.

Ushakov said Yanukovich would not attend a meeting this week of the customs union. Ukraine has observer status but is not a member.

"The meeting will be conducted without observers," Ushakov said.

Yanukovich's office said more time was required to define the relationship between Ukraine, a member of the World Trade Organization, and the customs union. Sources have suggested a gas deal might not involve full membership of the customs union for Ukraine.

"On the agenda of the meeting between the presidents of Russia and Ukraine were the issues of bilateral cooperation, above all in the energy and trade areas - in particular, working out a mutually acceptable way for Ukraine to interact with the Customs Union of Russia, Belarus and Kazakhstan," Yanukovich's office said in a statement.