Blow to US as Hungary backs Russian pipeline - February, 2008


Blow to US as Hungary backs Russian pipeline

February, 2008

Hungary yesterday backed a planned Russian gas pipeline crossing south-east Europe, a move that risks angering Budapest's western partners and could threaten the prospects of Nabucco, a rival pipeline supported by the US and the European Union. Ferenc Gyurcsany, the prime minister, announced the move during a visit to Budapest by Dmitry Medvedev, Russia's first deputy prime minister and likely successor to the president, Vladimir Putin. The deal is expected to be signed in Moscow on Thursday. The Hungarian decision puts Gazprom, the Russian gas monopoly, in a strong position to build its proposed $10bn-plus (£5bn, €6.7bn) Southstream pipeline, which would bring gas from Russia across the Black Sea and into the heart of the EU. Having secured the support this year of Bulgaria and Serbia, Gazprom has now obtained agreements for most of the route to Italy, the pipeline's main destination. It is also in a position to build a link to Austria, central Europe's gas hub, where the Russian group already enjoys close links. Gazprom has yet to decide whether to build a separate connection from Bulgaria across Greece and the Adriatic to southern Italy.

Mr Gyurcsany and Mr Medvedev denied that Southstream was a threat to Nabucco, a rival western-backed route that would bring gas from central Asia to Europe via Turkey. Mr Gyurcsany said: "It's in the interests of Hungary to have both pipelines crossing Hungarian territory." The Hungarian section of the pipeline will be owned by a 50-50 joint venture between the government and Gazprom. Mr Medvedev said that for Russia the diversification of routes was important. Moscow is building Southstream and a Baltic Sea route called Nordstream to reduce its dependence on its current principal pipeline running through Ukraine. However, Nabucco's backers are concerned that Southstream is gaining big commercial advantages by signing gas supply deals, leaving Nabucco in a weaker bargaining position. A US official said: "It's important to remain focused on the clear Euro-Atlantic priority, which is Nabucco. It's understandable that countries want to have as many pipelines crossing their territory as possible. But it's a flawed approach because sequencing matters, and you want to put into place some diversification before deepening your dependence on a primary supplier."

The EU is in an awkward position, because while its collective gas policy is to encourage diversification of supply away from Russia, leading EU members, including Germany, France and Italy, have signed bilateral deals with Gazprom. * Mr Medvedev showed support for Serbia yesterday after what he called Kosovo's "illegal" western-backed declaration of independence last week. "We proceed from the understanding that Serbia is a single state with its jurisdiction spanning its entire territory ," he said.

Source: http://www.ft.com/cms/s/0/8465fc98-e...0779fd2ac.html


In related news:


Russia halves Ukraine's gas

Gazprom announces another 25% gas cut to Ukraine: http://www.youtube.com/watch?v=Udz7AZNVO8g

Moscow halved gas supplies to Ukraine on Tuesday in a payments row that threatened to disrupt gas flows to Europe from Russian gas export monopoly Gazprom, the power base of president-elect Dmitry Medvedev. A similar row between Moscow and Kiev disturbed supplies to Europe early in 2006, leading to questions about Russia's reliability as a supplier of a quarter of Europe's gas needs. Gazprom said it could reduce supplies further if no deal is reached, a tactic the International Energy Agency (IEA) called "excessively harsh". Kiev hinted it could retaliate by drawing on Russian gas flowing to Europe through pipelines across its soil if it ran short of domestic supplies. "The Russian side expects Kiev to intensify its efforts to quickly settle debts for deliveries," Russian agencies quoted Medvedev as telling Ukrainian President Viktor Yushchenko, who had phoned to congratulate him on a "brilliant" victory in Sunday's presidential elections.

Medvedev, Gazprom's chairman and a close ally of the current President Vladimir Putin, has vowed to follow the policies of his mentor, who has been often accused by the West of using energy as a tool of intimidation. Yushchenko, who has managed to improve ties with Moscow in the past months, has major political differences with his former ally the current Ukrainian prime minister, Yulia Tymoshenko, whom he has accused of failing to keep to gas payment schedules. Both Ukraine and Gazprom said deliveries to Europe were running normally, but Deutsche Bank said this could change should Gazprom cut volumes further. "We view the current situation as a major challenge to Gazprom's status as a reliable gas supplier to Europe," it said. "In the long run, this may have an impact on European consumers' preferences as they try to diversify sources of gas away from Gazprom," said Pavel Kushnir from Deutsche Bank.

APPROPRIATE ACTIONS

Ukrainian state firm Naftogaz said it would guarantee transit to Europe as long as it had enough gas for local needs. "Naftogaz reserves the right to introduce appropriate, asymmetrical actions to defend the interests of Ukrainian consumers," spokesman Valentyn Zemlyansky told journalists adding that mild weather and sufficient reserves would allow Ukraine to cope for now. Not everyone in Ukraine was convinced it could do so. "Reductions will firstly affect production areas with round-the-clock operations, like steel and chemicals," said Anatoly Kinakh, head of the Ukrainian Union of Industrialists. "They will hit equipment and quality of output so it cannot go on for any length of time. There is no basis for any suggestion that we could live for a month on our reserves."

Gazprom's cuts started with a 25 percent supply reduction on Monday as it says Kiev owes $600 million (300 million pounds) in unpaid bills and had not resumed negotiations since last week. It followed up with another 25 percent reduction on Tuesday evening. Ukraine will get around 70 million cubic metres of gas a day, 50 percent of usual levels. By comparison, Gazprom's supplies to Europe currently run at around 360 mcm a day. Though all of Gazprom's exports are reaching Europe, Ukraine said the firm had paid no transit fees for gas going to Europe since December, a statement denied by Gazprom.

Yushchenko last month clinched a deal on arrears and supplies with Putin, but that appears to have unravelled after a visit by the more strident Tymoshenko to Moscow. Tymoshenko opposes the existence of any intermediaries in gas trade. "Everything is linked to the fact that Tymoshenko is now in power and her attempts to eliminate intermediaries from the gas trade. This is what has caused the increased tension," said Volodymyr Fesenko from Penta, a Kiev-based think tank. Tymoshenko, who last week said the gas cutoff would never happen, made no comment on Tuesday. Diplomats say most key Gazprom decisions are taken personally by Putin, who is set to be prime minister under Medvedev, who will be inaugurated in May.

Source: http://www.iht.com/articles/reuters/...INE-RUSSIA.php


Ukraine likely to cut gas deliveries to Europe


Ukraine's state gas company Naftogaz said Tuesday that it may reduce gas supplies to Europe if Russia cuts gas deliveries to Ukraine by another 25 percent. "Naftogaz recognizes that it can guarantee uninterrupted gas transit to Europe, but we reserve the right to take appropriate action if Ukraine's energy security comes under threat," Naftogaz said in a statement. The statement came on the same day when Russia's natural gas company Gazprom said it will cut gas deliveries to Ukraine by another 25 percent as of 8 p.m. Moscow time (1700 GMT) Tuesday, following a previous 25-percent cut Monday. Gazprom spokesman Sergei Kupriyanov said Monday Ukraine had consumed without Russian authorization around 1.9 billion cubic meters of Russian natural gas from the beginning of this year, worth some 600 million U.S. dollars. The gas row was triggered after the two sides failed at the last minute to sign a deal, under which they would agree that Ukraine would pay its debt for Russian gas deliveries and that a new delivery scheme would be worked out. In the statement, Naftogaz also called on Gazprom to resume negotiations to achieve a mutually-beneficial agreement. Ukraine sits on the main transit route for Russia's gas exports to Europe, where yearly a quarter of Europe's gas comes through Ukraine. A similar dispute between Moscow and Kiev sent jitters into European customers in 2006 as Gazprom cut all gas supplies to Ukraine.

Source: http://news.xinhuanet.com/english/20...nt_7718326.htm

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