Russia cuts off gas to Ukraine

Russia cut off the gas to its neighbour Ukraine yesterday after a contract dispute but increased supplies to other European states to try to reassure customers worried about possible disruption.

The European Union, which receives a fifth of its gas from pipelines crossing Ukraine, and the United States urged further negotiations to resolve the dispute and said all supply commitments must be met.

Energy firms in Germany, France, Poland, Romania, Austria and Italy said they had not yet seen any drop in supply. Europe has enough gas stockpiled to manage without Russian gas for several days, though not weeks, analysts said.

The row could raise new doubts about Moscow's reliability as an energy supplier and fuel suspicions in the West - already running high since Russia's war with Georgia last August - that the Kremlin bullies its pro-Western neighbours.

Ukrainian President Viktor Yushchenko, the target of fierce criticism from Moscow over his drive to take Ukraine into the Nato alliance, said he wanted to resume talks with Moscow to settle a row over payment arrears and gas prices for 2009.

Mr Yushchenko said in a statement he believed a compromise deal with Russian gas export monopoly Gazprom was achievable by Orthodox Christmas on January 7.

Signalling a possible way out of the stand-off, Ukraine's state energy firm Naftogaz increased the amount it said it was prepared to pay for Russian gas to $235 per 1,000 cubic metres - $15 short of the amount Russia has demanded - but also said it wanted Russia to pay higher transit fees.

The EU is keen to avoid a repeat of a January 2006 row when Moscow cut off supplies to Ukraine, causing a brief fall in gas deliveries to other parts of Europe in mid-winter.

Russian gas export monopoly Gazprom halted supplies to Ukraine on Thursday morning after a failure to agree terms for supplying gas in 2009.

"We have fully cut off supplies to Ukraine as of 10.00 a.m. (0700 GMT) today," a Gazprom official told reporters at company headquarters in Moscow. "We continue supplying Europe in full."

Ukraine's Naftogaz said it had seen a reduction of pressure in its pipelines, and was pumping gas from its stockpiles, which it says are sufficient to last it several months.

Both Russia and Ukraine say they will do nothing to jeopardise supplies to Europe.

The cut-off could, however, have a knock-on effect if it causes a drop in pressure in the transit pipelines or if Ukraine diverts flows bound for Europe.

Naftogaz chief Oleh Dubyna said the firm was diverting 21 million cubic metres per day of Russian gas bound for Europe. He said the gas was needed to maintain sufficient pressure in the pipeline network to keep transit gas moving.

Gazprom said it had stepped up volumes for European consumers beyond Ukraine to 326 million cubic metres (mcm) per day from the usual level of 300 mcm - a step which may have been aimed at offsetting the gas Ukraine was diverting.

At the Texas ranch of US President George W. Bush, a White House spokesman urged Moscow and Kiev to bear in mind the possible humanitarian implications of supply disruptions.