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UPDATE 3-Russia, Ukraine avoid gas war ahead of Obama visit

Fri Jun 26, 2009 2:14pm EDT

Stocks

   

* Gazprom says no longer concerned about June bill

* Ukraine to increase imports of gas from July

* Gazprom ready to start Azeri gas imports from 2010

* Gazprom no longer interested in Canada's Rabaska

(Adds quotes from Miller briefing, details, backround)

By Vladimir Soldatkin

MOSCOW, June 26 (Reuters) - Russia and Ukraine will avoid a repeat of the January gas row that cut supplies to Europe, at least until August, Russia's gas export monopoly said on Friday, adding that payments for future supplies were still a concern.

The head of Russia's Gazprom, the world's largest gas firm, said it was now certain Ukraine would pay its $300 million bill for June in a move to ease tensions that could have coincided with U.S. President Barack Obama's visit to Moscow next month.

"No one wants the crisis to be repeated. That (January row) was an anomaly," Alexei Miller told reporters following talks with Ukraine's officials, in a much more conciliatory comment than in previous days.

Belarus, which is the second most important route for Russian gas to Europe after Ukraine, also said it would begin paying gas arrears to Russia from July.

European customers watch eagerly talks between Russia and its transit partners, Ukraine and Belarus, as the continent gets a quarter of its gas needs from Siberian fields.

Gazprom, Ukraine's Naftogaz, global banks and the European Commission will hold talks on Monday to find a way to help Ukraine fill its gas storage to ensure smooth supplies during the winter.

Miller said he hoped a compromise would be found to help Ukraine raise the funds as the country wants to step up imports from July and onwards to take advantage of falling gas prices. Ukraine says it needs $4 billion to fill gas storage.

Ukraine, suffering a severe shock from the global crisis, also needs to pay $300 million for supplies in June. Russian officials have repeatedly said they doubt Ukraine is able to pay but Kiev has consistently come up with the money since January.

Under a 10-year deal signed in January that ended a two-week cutoff of supplies to Europe, Ukraine must pay by the seventh day of the month following the imports. Obama is due to visit Russia on July 6-8.

With Belarus the rules are less strict, but Moscow revealed this month that Minsk owes $230 million and demanded quick repayment. Miller said the debt was $244 million and said the contract foresees arbitration or supply reduction, though he said he was confident a compromise would be reached.

Belarus' First Deputy Prime Minister Vladimir Semashko said Minsk would repay gas arrears before the end of 2009.

PIPELINE FETISH

Miller also said he hoped to sign new deals with Azerbaijan next week during Russian President Dmitry Medvedev's state visit to Baku. He said Gazprom was ready to start buying small volumes of Azeri gas from next year to supply Russia's southern regions.

Miller said gas will come from phase one of Azerbaijan's main fields, Shakh Deniz, led by BP (BP.L) and StatoilHydro (STL.OL), and added that talks would stretch beyond phase one.

Phase two of Shakh Deniz is viewed as a main potential source of gas for the EU-backed $11 billion Nabucco project.

Although Gazprom says it does not see the EU-backed pipeline as a rival, it has stepped up efforts to outpace it with its own new project to southern Europe, South Stream, which it is building together with Italy's energy major ENI (ENI.MI).

Many European politicians have expressed concerns that projects such as South Stream will further boost the continent's reliance on gas from Russia.

"Europe's quest for diversification is understandable but it should not become a fetish," said Miller.

He said by diversifying sources of supply Europe may achieve a negative surprise result. "There will be a lot of diversification but not much of reliability and stability."

Miller said Gazprom was still looking at gas terminals in North America but was no longer interested in Canada's Rabaska.

Last year Gazprom said it was joining Enbridge Inc (ENB.TO), Gaz Metro (GZM_u.TO) and Gaz de France GAZ.PA in developing an C$840 million LNG project in Quebec. [ID:nL8718914] (Writing by Dmitry Zhdannikov and Simon Shuster; editing by Keiron Henderson)



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