UPDATE 4-Ukraine warns Europe of Russian gas cut-off, Moscow denies

Wed Aug 27, 2014 3:54pm EDT

* Russian, EU diplomats say Russian cut to EU is unlikely

* Russia halted gas flows to Ukraine in June

* EU, Ukrainian utilities try to prepare for winter disruption (Add comment from Kremlin spokesman paragraphs 10-11)

By Natalia Zinets

KIEV, Aug 27 (Reuters) - Ukraine warned Europe on Wednesday that Russia could cut off gas to the continent this winter, but Moscow responded that the supply of gas would continue regardless of politics.

Ukrainian Prime Minister Arseny Yatseniuk said Kiev knew of Russian plans to halt gas flows this winter to Europe, comments that were promptly denied by Russian Energy Minister Alexander Novak.

"The situation in (Ukraine's) energy sector is difficult. We know of Russia's plans to block (gas) transit even to European Union countries this winter, and that's why their (EU) companies were given an order to pump gas into storage in Europe as fully as possible," Yatseniuk told a government meeting, without disclosing how he knew about the Russian plans.

Russia has halted gas flows to Ukraine, a major transit route for EU gas, three times in the past decade in 2006, 2009 and since June this year because of price disputes with Kiev.

In the past Russia's Gazprom has insisted it has been a reliable supplier to the European Union, its biggest market, and that flows to Europe were disrupted in 2006 and 2009 only after Ukraine took some of the gas intended for the EU to meet its own winter demand.

Ukraine's warning came less than 24 hours after a meeting between Russian President Vladimir Putin, his Ukrainian counterpart Petro Poroshenko and Europe's main energy diplomat, Guenther Oettinger, which included talks to secure Russian gas flows during the peak winter months.

Novak called Yatseniuk's comment a "groundless attempt to intentionally mislead or misinform European consumers of Russian gas".

He added, "We will put forth maximum efforts to fulfil gas contract obligations to European importers regardless of political issues in this or that transit country."

Russia is open to "constructive dialogue" on energy with interested partners including Ukraine, he said.

Kremlin spokesman Dmitry Peskov said on Wednesday Russia is and will be a reliable supplier of natural gas to Europe.

"Russia was, is and will be a reliable supplier of energy resources to Europe," Peskov told journalists, "We hope that Ukraine in turn will guarantee unhindered transit."

A Russian ministry source said Ukraine would be more likely to start taking gas intended for the European Union to meet its own needs than Russia would be to cut off supplies to Europe.

Gazprom declined immediate comment.

SUPPLY TO UKRAINE HALTED

EU officials also say they do not expect Russia to cut off supplies to EU customers, which account for about 80 percent of Gazprom's gas sales. But they say they have options if it does.

"We have a Plan B for the worst-case scenario. But we don't expect to need it," European Energy Commissioner Guenther Oettinger said in Ungheni, Moldova on Wednesday.

European and Ukrainian power and gas providers have been preparing for a potential Russian supply cut by injecting as much gas as possible into storage over the spring and summer seasons.

Preparations have also been made for Ukraine to import reverse flows of Russian gas from EU countries.

"The government has amassed 15 billion cubic metres (bcm) of gas in storage," Yatseniuk said, and has plans to boost storage to 25 bcm.

"Europe now has 16.52 bcm (31.2 percent) more gas in storage compared to the same time last year," research firm Energy Aspects said, but added that "based on recent average rates of injection, Ukraine will only fill its storage to around 52 percent of capacity come the start of withdrawal season".

A lack of sufficient alternative supplies still means Ukraine and some central and southeastern European countries would not be able to cope with a winter gas cut without large-scale energy supply disruptions, analysts say.

RUSSIAN GAS IS KEY

Russia is Europe's biggest supplier of oil, coal and natural gas, meeting around a third of demand for all those fuels, according to Eurostat data. It receives in return some $250 billion a year, or around two-thirds of government revenue.

While buyers can switch oil and coal suppliers relatively quickly and easily, Europe receives most of its gas through pipelines that are fed by only one supplier, Gazprom, in annual exports worth $80 billion.

"Our main concern, no doubt, is gas. We have ongoing ... negotiations between the Russian Federation and Gazprom on one hand and Ukraine and (Ukraine's gas company) Naftogaz and our European Commission," Oettinger said after meetings from Tuesday through early Wednesday.

"On Friday we will be in Moscow for the next trilateral consultation between the Russian Federation/Gazprom and Ukraine/Naftogaz with the EU as a moderator of an important process," he added.

The latest gas pricing dispute is closely intertwined with a bigger standoff between Moscow and Kiev.

Ukraine's former Moscow-leaning president Viktor Yanukovich fled following weeks of street clashes by people angry that he had rejected an association agreement with the European Union and instead promised to boost cooperation with Russia.

Moscow subsequently annexed Ukraine's Crimea peninsula in March, and pro-Moscow separatists have staged an insurgency in the east of the country.

The area where the fighting is concentrated, known as the Donbass, is a major source of coal for Ukraine.

Yatseniuk said the government has been trying to diversify coal supplies as "Russia and their mercenaries are bombing and destroying mines". Russia has denied any involvement in the conflict. (Additional reporting by Barbara Lewis in Brussels and Luiza Ilie in Ungheni; Writing by Henning Gloystein and Vladimir Soldatkin, editing by David Evans and Jane Baird)

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