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Ukraine-Russia gas row: Red bills and red rags

Russia has threatened to cut gas supplies to Ukraine because of the dispute over prices. That could also affect EU countries, as much Russian gas is delivered to the West through Ukraine.

What’s behind the row, and what might be the impact on Europe and its gas supplies.

What is the row about?

The immediate dispute is about Ukraine’s very large unpaid gas bill: $2.2bn (£1.2bn; 1.4bn euros), according to the Russian state-controlled utility Gazprom.

If Ukraine does not settle its bill, Gazprom will in effect install the world’s largest pre-pay meter, and Ukraine will be obliged to pay for its gas in advance. If it fails to pay, Gazprom says it will restrict or suspend delivery.

But lurking behind this is the power struggle between the interim Ukrainian government, which leans towards the EU, and Russia, which wants to keep Ukraine firmly within its sphere of influence.

In February, months of street protests culminated in the removal from power of Ukraine’s pro-Russian president, Viktor Yanukovych. He had decided not to sign an association agreement with the EU, opting instead to join Russia’s customs union.

But the interim government has reversed course. In return, the EU is providing development assistance, a loan of 1.6bn euros (£1.3bn; $2.2bn), the temporary removal of customs duties on Ukrainian exports to the EU, and a programme to lessen Ukraine’s energy dependence on Russia.

That has angered the Kremlin. Gazprom has raised the price Ukraine will have to pay for its gas in future by 81%: up to $485.50 (£293; 354 euros) from $268.50 for 1,000 cubic metres.

Europe's pipeline network

Previously, Ukraine’s gas imports were subsidised in return for Russia’s lease of the naval base at Sevastopol in Crimea, the home of the Russian Black Sea fleet. But since Russia annexed Crimea last month, that agreement is no longer valid.

Ukraine’s economy: How bad is the mess?

line break

Will anyone outside Ukraine be affected?

Quite possibly – the EU gets about a third of its gas from Russia, with some 50% of this flowing through Ukraine.

Outside Ukraine, two other pipelines link Russia to the EU: the North Stream (under the Baltic) and the Yamal, which flows through Belarus and Poland.

Germany and Italy are the two biggest customers for Russian gas. However, Germany is building more coal-fired power plants and renewable energy installations, including offshore wind farms.

Countries most reliant on Russian gas flows via Ukraine (cubic metres, billion)

SOURCE: OXFORD INSTITUTE FOR ENERGY STUDIES
2013 2012
Italy 25.33 15.08
Turkey 13 14.02
Germany 11.71 21
Czech Republic 7.32 7.28
Hungary 6 5.29
Slovakia 5.42 4.19

Another pipeline, the South Stream, is under construction, running from Russia under the Black Sea to Bulgaria and then splitting into two branches, north through Hungary to Austria, and south to Italy. The project website says the South Stream is scheduled to begin supplying gas late next year and be completed in 2018-19.

However, the EU could decide to freeze construction as part of a further round of sanctions on Russia.

Interconnectors between different pipelines could also help. South-eastern EU countries such as Austria and the Czech Republic receive their supplies via Ukraine and are most at risk if Russia turns off the taps. However, they could receive relief supplies via the interconnectors flowing down from Germany.

Other countries, such as Poland, Lithuania, Estonia and Finland, are looking to diversify their energy supplies, for example by bringing in more liquefied natural gas (LNG) from non-European countries, such as Qatar, or shale gas from North America.

One factor working in the favour of EU consumers is the weather: energy use falls in summer, reducing dependence on imports.

By Alix Kroeger and Russell Hotten

Source:BBCNews

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