UPDATE 2-Europe's gas supply at risk as Gazprom warns Ukraine over unpaid bills

Fri Mar 7, 2014 10:56am EST

* Gazprom hints gas flows cuts to Ukraine and Europe may be repeated

* Ukraine failed to pay for Feb gas supplies on time - Gazprom

* The Russian company puts Ukraine's total gas debt at $1.89 billion

By Vladimir Soldatkin

MOSCOW, March 7 (Reuters) - Gazprom issued a thinly veiled warning on Friday that it could stop shipping gas to Ukraine over unpaid bills, increasing pressure on the new government in Kiev and its supporters in Europe, which gets half its Russian gas through Ukraine.

"Either Ukraine makes good on its debt and pays for current supplies, or there is risk of returning to the situation of early 2009," Gazprom CEO Alexei Miller said.

Gazprom halted gas supplies to Ukraine over unpaid bills at the beginning of 2009, which led to reductions in supplies of Russian gas to Europe during a cold winter.

Ukraine's desperate financial position has deteriorated further in the two weeks since pro-Western protestors in Kiev brought down Moscow-backed president Viktor Yanukovich, which prompted Russian forces to seize control of Ukraine's Crimea peninsular in response.

Naftogas, Ukraine's state energy company, was not immediately available for comment.

The 2009 standoff resulted in the revision of Ukraine's contract with Gazprom and a deal enabling Russia's Black Sea naval fleet to remain at a base in Ukraine's Crimea region for decades.

The turmoil in Ukraine has opened up the biggest rift between Russia and the West since the Cold War. A pro-Western government is in place in Kiev, but Russia has said it has the right to invade Ukraine to protect its citizens - and even Russian speakers, who are in the majority in the east of Ukraine.

In December, Russia had agreed to cut gas prices for Ukraine to $268.50 per 1,000 cubic metres from around $400, part of a bailout package seen in the West as reward for Kiev's decision to reject closer ties with the EU and turn to Russia instead.

Russian President Vladimir Putin and Gazprom have said already that Russia will abandon the price discounts for Ukraine as of April because Kiev has failed to pay for gas on time.

"Today, March 7, was the deadline for payments for gas supplies to Ukraine in February. Gazprom has not received payments for the debt," Miller said, adding that Ukraine's overdue gas debt to Russia now stands at $1.89 billion.

"Essentially, this means that Ukraine has stopped paying for gas. This totally contradicts the provisions of the contract and international trade practices. For our part, we have always fulfilled and will fulfil our contractual obligations," Miller said. "But we cannot supply gas free of charge."

Last year, Gazprom supplied the European Union and Turkey with 162 billion cubic metres of gas, a historic record, of which 86 bcm went via Ukraine.

The Kremlin-controlled company has been cutting gas supplies to Europe via Ukraine as it has built a pipeline called Nord Stream under the bed of the Baltic Sea directly to Germany.

It also plans to build the 63 bcm a year South Stream pipeline via the Black Sea to Europe.

Norwegian gas exports surged to the highest levels since January 2013 on Friday as demand rose in continental Europe due to fears that Russia may cut gas supplies via Ukraine.

Earlier on Friday, a Gazprom spokesman said Russian gas transit via Ukraine to Europe remained stable.