Extreme Cold Forces Gazprom To Cut Europe's Gas

Extreme Cold Forces Gazprom To Cut Europe's Gas
http://www.sptimes.ru/index.php?action_id=2&story_id=16602

By Catherine Belton

Staff Writer

MOSCOW - Russia's extreme cold spell forced cuts in gas supplies to
Europe, hitting Gazprom's exports for the second time this month.

Italy, Hungary and Serbia all reported drops in natural gas supplies
from Russia on Wednesday as Gazprom struggled to handle increased demand
amid this week's low temperatures.

While Ukrainian Fuel and Energy Minister Ivan Plachkov said that
Ukraine had reduced onward gas supplies to Europe at Russia's request,
Gazprom also started to cut supplies to domestic power stations to ensure
that other needs, such as heating Russian homes, were met.

"The situation is very tense," said Gazprom spokesman Sergei
Kupriyanov. "We are doing the maximum to make sure transport and supply
agreements are met.

"We are meeting all our contractual obligations in full," he said.

As Gazprom executives gathered for an emergency meeting Wednesday,
Italian Industry Minister Claudio Scajola called the heads of his country's
biggest energy companies - Eni, Enel and Edison - for crisis talks Thursday
on how to avert gas shortages there.

National utility giant Unified Energy Systems and the European
countries affected by the shortages said they could cope for now. But even
though analysts said the cutbacks were understandable given the severe cold
spell, they served to further underline Europe's fears about dependency on
Russian gas.

Gazprom has been struggling to regain its reputation as a reliable
supplier of energy to Europe after a price standoff with Ukraine over the
New Year's holiday led to a reduction in supplies to Europe for the first
time in decades.

Russia's price dispute with Ukraine prompted debate in Europe, where
25 percent of gas imports come from Russia, about diversifying supplies.

"They could have done without this," said Stephen O'Sullivan, co-head
of research at United Financial Group, referring to European gas consumers.
"If the Ukraine thing hadn't happened, people would not have been too
concerned. This reminds people that Russian gas is not a stable source.

"It's like, just when it's safe to come back in the water, here comes
another shark to get you," he said. "This magnifies the effect. Many people
are realizing that they can't depend so much on one source."

In an echo of the suspicion between Russia and Ukraine during their
earlier dispute, Gazprom's Kupriyanov refused to comment on Plachkov's
assertion that volumes in the Ukraine pipeline had been cut in accordance
with an agreement with Gazprom.

Plachkov told reporters in Kiev earlier Wednesday that Ukraine had cut
supplies through the pipeline by 40 million cubic meters per day in an
agreement with Gazprom to meet needs in eastern Ukraine, where temperatures
had sharply dropped. He said, however, that gas from Gazprom storage
facilities would compensate for the shortfall, Interfax reported.

Italy's Eni said in an e-mailed statement that its gas imports from
Russia fell 5.4 percent over the 24-hour period beginning 6 a.m. Tuesday.
Gazprom did not supply 4 million cubic meters out of the 74 million it had
requested over that time, an amount that represented 1 percent of Italy's
demand, the statement said. "This amount is not serious," an Eni spokesman
said on condition of anonymity.

Other countries, however, were hit worse. Hungary's MOL said supplies
had been cut by as much as 20 percent. A company spokesman said industrial
users would have to switch to alternate supplies if the cuts continued. For
now, he said, they had enough reserve supplies, while domestic consumer
needs could be fully met.

"Serbia, Montenegro and Bosnia could be much worse affected. They have
hardly any gas storage facilities," said the spokesman, Denis Mohorovic.

A spokesman for Serbia's Srbija Gas said Gazprom had said its supplies
would be cut by 25 percent, Reuters reported.

In Russia, UES spokeswoman Tatyana Milyayeva said that many of the
electricity giant's power stations had been informed that gas supplies could
be reduced by as much as 50 percent. "Many power stations in the Moscow
region are already receiving reduced supplies," she said.

The cutbacks were in line with a pre-agreed plan with Gazprom under
which the power stations would switch to alternate fuel sources in case of
extremely cold weather, she said.

In the Moscow region alone, UES stores 400,000 tons of diesel, and
across Russia, the company has enough alternate supplies to keep power
stations going, Milyayeva said. According to UES's calculations, the gas
cutbacks would only last for three days. "Temperatures are already rising in
Siberia," she said.

Kupriyanov said the reduced supplies to power stations were in line
with an emergency plan designed to cope with such cold weather spells, under
which supplies to major industrial customers are cut to ensure essential
supplies are maintained and the industrial users switch to other fuels.

Kupriyanov insisted that Gazprom was meeting all its commitments to
Europe. "It is possible that some of our partners are getting less than they
would like," he said.

Some analysts pointed out that in such bad weather Gazprom could
hardly be expected to act otherwise. "This is a totally bona fide reason for
cutting gas supplies," said Jonathan Stern, director of gas research at the
Oxford Institute of Energy Studies. "This is not comparable to what happened
two weeks ago."

But others said the reduction in supplies again highlighted the danger
of being too reliant on Russian gas. "This is a technical blip which again
exposes what you might call a bit of vulnerability," said Daniel Simmons, an
expert on natural gas at the International Energy Agency in Paris. "The
Ukraine situation was different, but this again points to the same thing
that people need to think about."

The IEA has long called for Europe to diversify its energy sources, as
it "will import even more gas from Russia" as demand grows, Simmons said.
The IEA predicts Europe's Russian gas imports will grow by 25 percent to 150
bcm per year by 2030.

The cuts to Europe could hardly have come at a worse time for Gazprom.
Its deputy CEO, Alexander Medvedev, told Britain's Guardian newspaper that
Gazprom wanted to supply 20 percent of the gas on the British market by
2015, and was also considering buying a major British company such as
Scottish Power.



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