"Time to break Russian gas habit"

By Anthea Pitt

E.ON Ruhrgas executive Jochen Weise claimed the former Eastern Bloc countries hardest hit by January's gas crisis were like "junkies", adding that nations dependent on Russia for their gas supply "had to do their homework".

Weise's comments came as Ukraine paid about $500 million owed Russia for May's gas supplies on 5 June.

The payment came after Russian Prime Minister Vladimir Putin said Russia would choke Ukraine’s gas supply until the cash was handed over.

Russia’s gas export monopoly Gazprom had earlier said it would demand 100% payment in advance from Ukraine for any future supplies should the May bill remain outstanding.

Last week, Italian Prime Minister Silvio Berlusconi pledged to ask the European Union to help Ukraine pay the bill.

However, Berlusconi’s plan was shot down by the EU, which said it believed any such financial help was inappropriate.

Weise told the IEA & Marketforce Future Gas Europe conference in Vienna: "[Europe] can breathe for another month, but the problem is still there.”

Weise added that Europe faces the prospect of further gas crunches in Russian supply until the dispute over payments for gas storage and transit is resolved.

"Until Ukraine stops selling Russian gas to its domestic consumers at a deep discount, this problem will persist," he said.

Russia, which supplies a quarter of Europe's gas mainly via Ukraine, cut gas to the former Soviet state twice in recent years due to pricing disputes, most recently for two weeks in January this year, disrupting gas supplies to Europe.

Weise told the conference that estimates for the total bill Ukraine faces for storage gas – essential for maintaining gas transit through the export trunkline to Europe – range from a conservative $2.5 billion to as much as $4.5 billion.

“Ukraine buys this gas at about $100 and sells it domestically at $80. This is the root cause of the problem, but neither [Prime Minister Yulia] Tymoshenko nor [President Victor] Yushchenko appear capable of facing the social consequences of removing the discount,” he said.

"Until they do, we will have to live with these crises," Weise said, adding that there is hope in some quarters that there may be a change after Ukraine holds a general election in January next year.

He said: “Let me make it clear we see Russia as a very reliable supplier. We consider the problem to be an unresolved issue with Ukraine.”

Weise added, however, that Western Europe needs to prepare itself for winter and that diversifying supplies will see it avoid the fate of Eastern Europe's "Russian gas junkies".

"They have no terminals, no storage, no diversification. They have to do something,” he said, referring to a dozen European countries, including Bulgaria, Moldova, Romania and Hungary, which went without Russian gas for two weeks during the January dispute.

“They need to do their homework and so do we.

“But we should also take confidence in our abilities,” he said, adding: “The co-operation we saw last winter shows [Europe’s gas players] can work together in extraordinary situations.”