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WRAPUP 7-Russia opens gas taps, but no relief for Europe

Tue Jan 13, 2009 2:51pm EST

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* Pumping station on Russia-Ukraine border opens taps

Stocks  |  Russia

* EU says little or no gas flowing

* Gazprom declares force majeure on exports to Europe

* Moscow, Kiev trade blame for lack of gas

By Gennady Novik

SUDZHA, Russia, Jan 13 (Reuters) - Russia started pumping gas meant for Europe via Ukraine on Tuesday for the first time in nearly a week, but the European Union said little or no gas was flowing to countries suffering urgent energy shortages.

Russia accused Ukraine of shutting off gas to Europe. But Kiev blamed lack of pressure in the pipeline system and said it could not ship gas without cutting off several of its regions.

The crisis has disrupted supplies to some 18 countries -- some of them totally dependent on Russian gas -- at the height of winter, shutting down dozens of factories in southeast Europe and leaving hundreds of thousands of people without heating.

Bulgaria and Slovakia, two of the hardest hit EU states, were reported to be sending their prime ministers to Russia and Ukraine on Wednesday for urgent talks.

A deal brokered by the EU, which gets a quarter of its gas from Russia, had been intended to get supplies moving on Tuesday, with international monitors in place to ensure that Ukraine was not siphoning off any gas, as Moscow has alleged.

Technicians at Russia's Sudzha pumping station, near the border with Ukraine, opened the gas taps at 10 a.m (0700 GMT).

Russia said flows were partly restarted but then blocked. "The taps on the Ukrainian side are simply closed," said Sergei Kupriyanov, a spokesman for state-controlled gas monopoly Gazprom (GAZP.MM).

Gazprom said it was declaring force majeure on gas exports to Europe, meaning circumstances beyond its control prevented it from meeting its obligations to clients.

Ukraine told the EU there were "technical difficulties" in that the pressure of gas from Russia was too low.

Gazprom is demanding that Kiev hand over $614 million for unpaid gas bills and pay $450 per 1,000 cubic metres of gas in 2009 -- similar to rates paid by EU customers but a big rise on last year's price of $179.5.

Analysts in Kiev say Ukraine, saddled with debt and hard hit by the global slowdown, cannot afford that price.

The disruption has dented the reputation of both Moscow and Kiev as energy suppliers and prompted a search for new routes.

"CONFLICT WILL CONTINUE"

The European Commission said Europe needed the gas urgently and an aide to Commission President Jose Manuel Barroso said he expressed disappointment over the low volumes pumped by Russia in a telephone conversation with Prime Minister Vladimir Putin.

Prime Minister Sergei Stanishev of Bulgaria and Slovakia's Robert Fico, among EU states worst hit by the crisis, were due to fly to Russia for talks, according to Russian news agencies. Ukraine's government said on its website that the two men would also travel to Ukraine.

Mikhail Korchenkin, an analyst from the Pennsylvania-based east Europe Gas Analysis think tank, said: "Gas cannot just appear on the other side of the pipeline, which is up to 1,500 km (940 miles) long. Gazprom is asking that the laws of physics are defied. I'm afraid the conflict will continue. Low gas prices in Europe simply make Putin very nervous."

An EU official in Brussels said there was only a small stream of gas coming in at Sudzha.

Ukraine had asked for 350 million cubic metres per day but Russia said it had to start slowly, with 1 million cubic metres per hour in Sudzha, he said.

"That was supposed to be increased but the latest news I have is that it is going down again, or going towards zero," the official said, adding that the pipelines proposed by Moscow to deliver the gas were "not an easy route".

Gazprom's Deputy CEO Alexander Medvedev said Ukraine's actions were being orchestrated by the United States. "It looks like ... they are dancing to the music which is being orchestrated not in Kiev but outside the country," he said.

State Department spokesman Sean McCormack dismissed the allegation as "bizarre" and "totally without foundation."

Russia cut off gas to Ukraine on Jan. 1 after failing to reach agreement with Kiev on gas fees. A week later it halted all transit flows to Europe via Ukraine, saying Ukraine was stealing gas intended for Europe. Kiev accused Moscow of using energy blackmail.

Analysts say Moscow's standing has suffered in Europe, its most lucrative gas market. Western diplomats say Ukraine's reputation has suffered too, and the economic impact could be even worse.

Ukraine's economy -- based on steel and chemical exports -- has been hit hard by the global slowdown and its hryvnia currency has experienced sharp falls. (Additional reporting by Katya Golubkova and Christian Lowe in Moscow, Pavel Polityuk in Kiev, David Brunnstrom in Brussels; Writing by Richard Balmforth)



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