Monday June 29, 2009

Russia gas flows to Europe under threat - IEA

LONDON (Reuters) - Europe's gas supplies are under near constant threat of disruption despite a new contract between Russian gas exporter Gazprom and Ukraine's Naftogaz, the International Energy Agency said on Monday.

"The difficult economic situation in Ukraine makes every monthly payment a challenge, and tensions remain high," Nobuo Tanaka, executive director of the adviser to 27 industrialised countries, said in a statement.

"The IEA is therefore seriously concerned that the flow of Russian gas through Ukraine may be subject to disruption at almost any time."

Europe gets about 20 percent of its gas from Russia via Ukraine and a row between Kiev and Moscow over payments cut supplies to Europe in January.

Hundreds of thousands of people were left without gas heating in the middle of winter in countries like Bulgaria that depend on free-flowing Russian gas while many parts of western Europe had plentiful supplies but were unable to help.

"The crisis again demonstrated that gas cannot flow easily across borders in Europe," said Tanaka.

"This is because there is a lack of physical interconnection capacity, capable of reversing the flow of gas from west to east, or the market mechanisms that enable gas to be directed speedily and efficiently are not present."

The only major cross border gas movement during the crisis was the flow from Britain to Belgium, the IEA said, but getting the gas across continental Europe is still difficult.

"In North America gas moves freely and quickly but it's not the case in Europe," said Ian Cronshaw, head of the energy diversification division at the IEA, told Reuters. "There are small things which will make an important difference."

The IEA estimated Russia cut 7 billion cubic metres of gas deliveries during the January crisis, which was made worse by the lack of gas storage facilities in eastern and southern European countries.

On June 26, Russia dismissed the January gas dispute as an exceptional case.

ALTERNATIVE PIPES

Possible alternative routes of gas from Russia to Europe includes the proposed Nabucco gas pipeline project which would bypass Ukraine and go through Turkey.

On June 26, Turkish and European Union officials said they were optimistic an agreement could be reached to launch the 30 billion cubic metres per year pipeline by 2014.

The project is still under discussion, with Turkey's condition of taking 15 percent of the gas delivered through the pipeline in exchange for assuring transit arrangements an ongoing obstacle.

Gazprom has said it does not view Nabucco as a rival. It is proceeding with its own pipeline project which would source its gas from one of Azerbaijan's main fields.

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