* Russia cut exports to Ukraine in June
* Past winters have seen EU disruptions in Russia, Ukraine
* So far Ukraine is still pumping gas onward to EU
* Seasonal gas spreads: link.reuters.com/wac42w
By Michael Kahn and Henning Gloystein
PRAGUE/LONDON, July 8 Central and south-eastern
Europe could face higher gas prices and potential shortages this
winter, as a prolonged price row between Russia and Ukraine
heightens regional supply fears.
The former Soviet countries, many of which receive most or
all of their gas from Russia via Ukraine, have been scrambling
to fill storage tanks and arrange alternate supply sources to
prepare for the winter heating season.
In June, Russian natural gas exporter Gazprom cut
off gas deliveries for use by Ukraine in a dispute over unpaid
bills, raising concerns of a disruption of supplies to the rest
So far, Ukraine has continued to send gas to the European
Union under transit obligations it has with Russia and EU member
Western Europe is well prepared to deal with Russian gas
flow disruptions, with access to alternative supplies such as
Norway and Algeria or imports of liquefied natural gas (LNG).
But for countries in central and south-eastern Europe the
dispute has rekindled memories of 2006 and 2009 when a pricing
disagreement prompted Russia to cut off deliveries along the
Ukraine pipeline, leaving hundreds of thousands of homes and
businesses without heat in freezing temperatures.
They rely largely on Russian gas imports via Ukraine and
would be hit hard by another winter gas cut-off. Problems could
come if Russia shuts off all flows via Ukraine or if Ukraine
takes deliveries meant for the West to meet its own demand.
Another potential threat is an attack on the pipeline
stemming from the fighting in the country between the government
and separatists in the east. A June blast on the pipeline caused
no casualties and did not interrupt flows but Ukraine called the
explosion a possible "act of terrorism."
"The 'no gas via Ukraine' scenario is the baseline scenario
for this year and a few more," said Vaclav Bartuska, the Czech
Republic's top official on energy security.
"There is instability which will not go away tomorrow. This
is not a gas crisis but a war plain and simple."
PREPARING FOR DISRUPTION
Most of Europe's gas pipelines are designed to flow only one
way, for instance from Russia's gas fields westward to Europe.
But past experience has spurred EU countries to enable
reverse flows of pipelines from West to East, increase storage
capacity, contract more supplies from Norway as well as building
new routes for Russian gas to come to Europe, avoiding Ukraine.
The Nord Stream pipeline, which runs from Russia through the
Baltic Sea directly into Germany, started operations in 2011.
Data from Gas Infrastructure Europe, an association of
transmission, storage and LNG terminal operators, shows that
storage tanks across the European Union's 28 nations are 71
percent full, compared with just 34 percent this time last year.
The gas currently in storage amounts to almost 60 billion
cubic metres (bcm) out of a total 80 bcm capacity, enough to
meet almost three months of total EU demand.
The Baltic region in particular has made progress in
diversifying its supplies, with a new LNG import terminal
expected to come online both in Poland and Lithuania in 2015,
and another facility planned for Estonia and Finland later this
But less has been done further south, leaving countries such
as Bulgaria and Serbia especially vulnerable.
Anna Bulakh from the International Centre of Defense Studies
in Talinn said that some progress had been made, but added more
effort was needed to avoid future disruption crises.
"The most vulnerable CEE/SEE (central/southeast European)
countries are in better positions compared to the 2009 crisis
due to progress towards completion of the internal energy
market," she said.
"But the problems are still there. Storage withdrawals
cannot be regarded as the source of security of supply in the
longer term and more interconnectors won't be built overnight."
Martin Boyadjiev of the Bulgarian Gas Center said that
"there's a possibility for shortages or consumption limit by
30-35 percent in case of gas supply problems" during winter.
"(Bulgaria) is taking steps to prepare for a crisis
situation as there are attempts for more intensive injection of
gas into storage, while long-term plans include expansion of
storage," he added.
HOPE FOR MILD WINTER
The weather will be crucial for these countries. Last year's
mild winter kept demand low whereas frigid temperatures such as
those seen in 2009 would spark a jump in gas demand.
Vojislav Vuletic, the president of the Serbian gas
association assembly, said the crisis in Ukraine has prompted
Serbian gas company Srbijagas to try to fill its Banatski Dvor
gas depot by autumn and to prepare to switch fuels for heating
if supplies are interrupted.
"Everything will depend on how harsh the winter will be," he
said. "The price of that gas might be higher from what we pay
for the Russian gas now."
Gas markets take a similar view.
While spot gas prices for delivery the next day have almost
halved since the beginning of the year following a mild winter
and spring, prices for delivery next winter have remained much
stronger due to speculation about possible Russian supply cuts.
(Additional reporting by Angel Krasimirov in Sofia and Maja
Zuvela in Sarajevo, Editing by Veronica Brown and Anna Willard)