UPDATE 2-Ukraine halts Russian gas imports; transit to Europe intact -sources

Mon Nov 11, 2013 11:04am EST

Related Topics

* Ukraine's Naftogaz has halted Russian gas intake since Friday

* Ukrainian tycoon Firtash still gets gas from Russia

* Ukraine has asked Russia to cut gas price

* Kiev due to sign EU free-trade deal this month (Adds detail)

By Denis Pinchuk and Pavel Polityuk

MOSCOW/KIEV, Nov 11 (Reuters) - Ukraine's Naftogaz halted Russian natural gas imports last Friday in a dispute over pricing, sources in the industry and at Russia's Gazprom told Reuters on Monday, but the flow to Europe via Ukraine was so far unaffected.

The stoppage comes just weeks before Kiev is due to sign a free-trade agreement with the European Union which has angered Moscow.

"There have been no supplies to Naftogaz since Friday," an industry source said, referring to the Ukrainian state energy company that buys Russian gas.

Ukraine has for years been a politically troubled buffer state between Russia and the European Union, and has used its status as a gas transit corridor to play Moscow off against Brussels.

Now, as Russia builds alternative export routes, Ukrainian President Viktor Yanukovich is seeking a rapprochement with the West even as it struggles to pay its import bill and its public finances become increasingly precarious.

The supply worry comes at a vulnerable moment for Europe, whose second-biggest gas supplier Norway faces production constraints due to refurbishment works on ageing fields this winter.

Ukrainian tycoon Dmytro Firtash, who has agreed to purchase 5 billion cubic metres (bcm) of gas to put into underground storage at a 30-36 percent discount, is still receiving gas from Russia, his spokesman said.

He declined to talk about volumes, but a source in the Russian gas industry says Firtash "receives very little at the moment". Gas held in underground storage caverns is intended to help meet peak demand during the winter heating season.

A source in Ukraine's gas industry said that gas pipeline operator Ukrtransgaz had ordered Naftogaz to stop purchases of Russian gas on Friday.

Russia supplies around half of its gas to Europe through Ukraine. An official at Gazprom said transit flows of Russian gas to European clients via Ukraine were continuing unaffected. "All requests for exports are being fulfilled," he said.

Both Gazprom and Naftogaz declined to comment on the stop to Russian gas flows to Ukraine, which has also tried to find other sources of gas.

The source in Ukraine said the country has been sending around 219 million cubic metres (mcm) of Russian gas per day to Europe. Ukraine gets around 4.4 mcm per day from Poland and 4.0 mcm per day from Hungary.

UNAFFORDABLE PRICE

Ukraine, which pays around $400 per 1,000 cubic metres of Russian gas, one of the highest prices in Europe, has asked Moscow to ease terms it considers excessive and unaffordable for its debt-strapped economy. It has been steadily reducing its Russian gas intake.

Last month, Gazprom said Ukraine had failed to pay for August deliveries in full.

The dispute has raised concerns of a new "gas war" over prices between the two neighbours, similar to those in the winters of 2006 and 2009 which disrupted supplies to other countries in Europe.

Ukraine's agreements with the European Union on association and free trade, expected to be signed at a summit on Nov. 28, offer the former Soviet republic of 46 million people the chance of an historic westward shift away from Russia.

Kremlin spokesman Dmitry Peskov told reporters on Monday that Russian President Vladimir Putin and his Ukrainian counterpart Viktor Yanukovich had met in Moscow at the weekend.

"They held talks, comprehensively discussed trade and economic relations of Ukraine and Russia," Peskov said, without elaborating.

Gazprom meets around a quarter of Europe's gas needs. It aims to increase gas supplies to the EU and Turkey to 152 bcm this year after they fell 7 percent to 139 bcm in 2012.

Countries in central and southeastern Europe, including Italy, get virtually all of their Russian gas supplies via Ukraine.

Any prolonged shuttering of deliveries could hit hard as it did during a gas war in 2009 which left many homes and businesses without heat during freezing winter temperatures. (Additional reporting by Olesya Astakhova, Natalia Zinets in Kiev, Alexei Anishchuk in Yekaterinburg, Stephen Jewkes in Milan and Michael Kahn in Prague; Writing by Vladimir Soldatkin; Editing by Douglas Busvine and Jason Neely)

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