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Russia gas row makes Europe shiver

Moscow, Jan. 1 (Reuters): Russia cut gas supplies to Ukraine today in a dispute that appeared to hit deliveries to a wintry Europe just as Moscow takes over as chairman of the Group of Eight hoping to showcase its reliability as an energy source.

The Russian state monopoly, Gazprom, said it had cut supplies to Ukraine by a quarter ' the level of Ukraine’s own imports ' after Kiev refused to sign a new contract requiring it to pay four times as much.

The switch-off already appeared to be having an effect farther west. Hungary’s gas wholesaler MOL said its Russian deliveries via Ukraine had fallen by more than 25 per cent, forcing it to order big consumers to switch to oil where possible from Monday.

Western Europe imports 25 per cent of its gas from Russia and most of that is delivered by pipelines running across Ukraine. The European Union said it did not expect shortages but was concerned by the standoff.

Ukraine’s Naftogaz energy company accused Russia of brinkmanship that was jeopardising Europe’s supplies. European gas demand is near peak levels because of freezing weather.

Though Russia says it is purely a business dispute, the row has fed concern that the Kremlin is prepared to use its vast energy resources as a political weapon.

Ukraine’s western-leaning President, Viktor Yushchenko, has irked Moscow by trying to take his ex-Soviet state on Russia’s western border into Nato and the European Union.

Ukrainian officials say that is why the Kremlin is punishing Ukraine with such a huge price increase while letting more Moscow-friendly ex-Soviet states such as Belarus pay far less.

Russia took over the annual presidency of the G8 club of industrialised democracies for the first time from Britain on New Year’s Day, and its tenure will come under close scrutiny.

“Russia wants to make energy security its key message to the G8 community, and simultaneously it is becoming a source of danger,” said Valery Nesterov, energy analyst at the Troika Dialog brokerage in Moscow.

French industry minister Francois Loos said Russia had given assurances about its gas exports, and that its G8 presidency meant it would act with a “sense of responsibility”.

Yushchenko stuck to his position that Ukraine was prepared to pay Moscow’s asking price, but not immediately.

“Ukraine is ready to move to a market price from 2006. We do not need loans, we are ready to pay.' But it should not be a virtual price but a real price following the European model,” he said after a three-hour crisis meeting with top officials.

Gazprom spokesman Sergei Kupriyanov said exports to Ukraine had been cut by 120 million cubic metres a day ' equivalent to Ukraine’s normal import volume.

He said enough gas was still being piped via Ukraine to maintain deliveries to other countries, and if they were not getting all their gas, it meant Ukraine was tapping into it.

Eighty per cent of Russian gas exports to western Europe pass through Ukraine.

“We have information from the ground that shows Ukraine has started illegally siphoning off Russian gas destined for European consumers,” Kupriyanov said.

The chief European importers of Russian gas are Germany, Italy and France, which would have to draw down reserves or seek alternative supplies if there was a major supply disruption.

Energy ministers of Germany, Italy, France and Austria have made a joint appeal to Moscow and Kiev to ensure a steady flow of gas despite the stand-off.

Moscow wants to raise the price of gas it sells to Ukraine to $230 per 1,000 cubic metres from the current $50 ' a level that reflects Soviet-era subsidised rates.

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