Europe faces energy shortages over Ukraine crisis

Europe faced the prospect of imminent energy shortages after Russia ordered crisis-hit Ukraine to pay upfront for all its natural gas deliveries because of billions of dollars in debts.

The largely-anticipated announcement imperils supplies to a large swathe of the European Union because nearly 15 per cent of all Russian gas consumed by the 28-nation bloc transits through Ukraine.

The ex-Soviet nation has refused to meet the deadline in protest over Russia's decision to nearly double the price it charges its neighbour for gas imports following the February overthrow of Kiev's Kremlin-backed regime.

Russia's energy ministry said Ukraine had missed a Wednesday deadline to pay debts worth $3.5 billion (NZ$4.04 billion) and that all gas sent from June 1 will have to be paid in advance.

"Russia is introducing a pre-payment regime for gas deliveries to Ukraine," Energy Minister Alexander Novak said in a statement.

President Vladimir Putin had last month warned in a letter to 18 EU nations that Russia would require Ukraine to make pre-payments unless Europe helped cover its debt to Moscow's government-run natural gas giant Gazprom.

"Russia can no longer - and must not - be the only one carrying the burden of supporting the Ukrainian economy, offering it discounts for gas and forgiving debts," said Novak.

The energy minister said Russia had "through its subsidies been effectively covering the deficit in Ukraine's trade with EU member states".

Ukraine defiant

The danger for the EU is that Ukraine - its state coffers effectively empty and almost completely reliant on $17 billion in aid over two years promised by the International Monetary Fund - will not cover its debt and instead start taking the gas Russia had earmarked for its European clients.

The nation of 46 million began dipping into supplies meant for Europe when it was cut off from Russian gas during previous price disputes in 2006 and 2009.

Ukraine imports roughly half of the gas it consumes every year from Russia. It received nearly 30 billion cubic metres of blue fuel from Gazprom last year.

Europe in turn purchased slightly more than 160 billion cubic meters of Russian gas in 2013.

Analysts believe that Europe's gas crunch would not be that severe in the short term because an unseasonably warm winter has helped EU nations to stock up on supplies.

But EU attempts to help resolve the gas war have so far proven futile and a new round of talks between the three parties has not yet been set for this month.

Kiev this week received the first $3.19-billion slice of the IMF aid package and Ukraine's energy minister said that payment could be used to cover the Russian debt.

But Energy Minister Yuriy Prodan stressed that Kiev was only willing to settle with Gazprom at its old price of $268.50 per thousand cubic metres rather than the new rate of $485.50.

"The price of $268.50 per thousand cubic metres is economically justified and one at which Ukraine is ready to settle (with Gazprom), including by using the first IMF tranche," Ukrainian media quoted Prodan as saying.

- AFP

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