Oil and Gas

UPDATE 1-Ukraine offers Russia role in gas pipe plan with EU

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KIEV, April 2 (Reuters) - Ukraine’s new leadership said on Friday it was inviting Russia to join the European Union in a plan to revamp Ukraine’s gas pipeline network, which carries crucial supplies of Russian gas to Europe.

The announcement by Prime Minister Mykola Azarov effectively reversed a March 2009 agreement, signed by former Prime Minister Yulia Tymoshenko, for the EU to overhaul its pipeline system -- a move that had angered Moscow.

“The declaration, signed in March last year in Brussels, was not fulfilled by the Ukrainian side as required and the European Commission did not undertake realistic steps for it to be carried out,” Azarov told journalists.

“Now we envisage a three-sided approach to modernisation: the participation of Russia, the EC and the Ukrainian side,” he added.

The question of which partner Ukraine would choose to help it modernise its pipeline network is politically sensitive since European consumers rely on Russian natural gas piped across Ukraine for about a fifth of their supplies.

The move by the new leadership of President Viktor Yanukovich, which says it wants to pursue a more balanced policy between Russia and the West, appeared to be a concession to Moscow, which had bristled at being shut out of discussions on the issue last year.

At the time, Prime Minister Vladimir Putin threatened to review ties with the EU and officials said the risk of gas supply disruptions would rise if Russian interests were ignored.

The spat revived fears of a repeat of a January 2009 gas dispute between Russia and Ukraine, when major EU customers were left without gas for nearly two weeks in the dead of winter.

Azarov, who met Putin in Moscow last month, said on Friday that a meeting of officials from concerned governments was planned for April 22 and Ukraine would go to Moscow with updated proposals on the issue. [ID:nLDE62O2H1]

Azarov said modernisation would cost “billions of dollars” but much would depend on the volumes of gas Russia intended to export over the next 10-15 years and the volumes the EU was prepared to buy.

Currently, Ukraine’s pipeline system is capable of handling 140 billion cubic metres of gas per year. In 2009, the EU received 96 billion cubic metres of gas through the Ukrainian pipeline system.

Reporting by Natalia Zinets and Pavel Polityuk; Writing by Richard Balmforth