Disruption of Russian gas to Europe unlikely, energy firms say

AMSTERDAM Wed May 21, 2014 5:56am EDT

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AMSTERDAM (Reuters) - Europe's gas supplies from Russia are unlikely to be disrupted in the coming weeks as both sides have too much at risk, energy companies and a Russian official said.

Europe's gas supplies from Russia are threatened by a dispute between Moscow and Kiev over an unpaid gas debt that has topped $3.5 billion, leading Russian producer Gazprom to demand Ukraine pay upfront for June deliveries.

European countries would be vulnerable to any disruption to gas flows via Ukraine as Russia supplies around a third of Europe's gas demand, sending some of it via Ukraine.

"My personal expectation is we will not see a supply disruption because everybody will have too much to lose," Stefan Judisch, chief executive of German utility RWE's supply and trading unit, said at the Flame European gas conference in Amsterdam.

In 2006 and 2009, gas flows to Ukraine were halted in the middle of winter price disputes, also cutting supplies to Europe.

"Nobody is interested in the disruption of gas supplies," said Alexander Kurdin, head of strategic energy research for the Russian government.

"Russia and Gazprom do not want to repeat the situation of 2009 because reputation is very valuable. I think they will find some compromise."

Last week, Russian President Vladimir Putin urged European leaders to do more to help Ukraine through its economic crisis and to resolve the stand-off over gas.

"Some Western institutions will help to solve the problem," Kurdin added.

EUROPEAN HELP

Europe's energy commissioner, Guenther Oettinger, said on Monday progress had been made in the gas price dispute after talks with Russia's energy minister and Gazprom and said a fresh round of negotiations was scheduled for May 26.

Oettinger added that he expected Kiev to use any forthcoming aid packages from the International Monetary Fund and European Union to pay for past and future gas deliveries. The EU will do all it can to ensure Ukraine pays its outstanding bills and to safeguard Europe's supplies, he said.

"We think there are incentives on both sides not to interrupt supply. In Europe because it is dependent on gas deliveries from Russia, and Russia, because it's an important source of income," Rune Bjornson, senior vice president of natural gas at Norway's Statoil, said.

Russia is the largest supplier of gas to Europe, with Gazprom's first-quarter deliveries up 2.6 percent from a year earlier, while flows fell from other major suppliers.

"It shows that Gazprom is the only reliable supplier," Sergey Komlev, a directorate head at Gazprom, said.

"The dependence of Europe on Russia increases."

Two conference participants, who asked not to be identified due to political sensitivities, said they expected Europe would eventually help Ukraine pay its gas bill but that negotiations were likely to continue beyond the current June 2 deadline.

"Perhaps the European Union or some member states which are dependent on Russian gas and would suffer most from an interruption to supply would pay on behalf of Ukraine, or offer financial guarantees that Russia would get the money within a defined timeline as an interim solution," said one source at the conference.

(Editing by Nina Chestney and Dale Hudson)

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