Russia warns EU of oil cuts over Ukraine row

Russia has warned the European Union of oil supply cuts because of a fresh row between Moscow and Kiev, the Slovak government said on Monday, hours after Russia played down worries about a new gas row with

The Slovak Economy Ministry said Russia has warned the European Union that Slovakia, Hungary and the Czech Republic could experience oil supply cuts. A European Union source said oil stocks in those countries were adequate to withstand cuts.

Europe, which receives the lion's share of its oil and gas needs from Russia, closely tracks Russian disputes with its neighbors after EU gas supplies were cut in the dead of winter in 2006 and 2009 due to disputes between Moscow and Kiev.

Another key transit state, Belarus, cut Russian oil flows to Europe via the Druzhba pipeline in January 2007, also due to a pricing row, which further undermined the image of Russia, the world's top oil and gas producer, as a reliable energy supplier.

The earlier cuts occurred amid strained political relations between Moscow and its neighbors. Ukraine will hold a presidential election in January and analysts have said that if a relatively pro-Russian leader is elected, Moscow is likely to take a more accommodating stance in future energy negotiations.

On Monday, the head of Russian gas monopoly Gazprom, Alexei Miller, said he expected Ukraine to pay its December gas bill in full and that he saw no repeat of gas rows -- backtracking from remarks made last week.

But he spoke only a few hours before the head of another Russian monopoly -- oil pipeline company Transneft -- accused Ukrainian politicians of setting new "unacceptable" terms for oil transit via the Black Sea port of Yuzhny.

Transneft President Nikolai Tokarev told Reuters Ukraine had asked Russia to pay more for transit and raised additional conditions concerning minimal volume guarantees, adding that oil supplies would be cut if no deal was quickly reached.

"We cannot and are not accepting tough terms. The (negotiation) process is continuing and I hope we will solve it before the New Year. But if they insist on their terms, we will also review the prospects of supplies," he said.

Asked about the cause of the dispute, Tokarev said: "These are purely political issues there (in Ukraine)."

The demand for higher fees from Ukraine comes as the International Monetary Fund has rejected Kiev's request for a $2 billion loan to help the recession-strapped country meet financial obligations by year's end.

A senior official of Ukraine's central bank said last week it had enough foreign currency reserves to manage its finances until the end of the year.

Druzhba Pipeline in Focus

Traders told Reuters on Friday Transneft had told them it would scrap the initial January program for Yuzhny consisting of 0.5 million tonnes, in a move that would effectively damage the Mediterranean oil market.

Yuzhny remains the last Ukrainian port through which Russia sends transit crude to the West after it stopped exporting crude via another outlet, Odessa, earlier this year.

Ukraine is also a major transit route for crude flowing to Eastern Europe via the Druzhba pipeline and Russia sent its warning to the European Union fearing a repeat of the January 2007 dispute with Belarus.

"From the EU point of view, the early warning systems have worked," said a EU source, referring to a recent deal under which Russia has to warn the continent about potential supply problems.

U.S. crude oil rose to above $79 a barrel on Monday, the highest in more than a month, largely because of colder weather across the major energy market the United States. The tensions involving Russia provided additional support.

The Druzhba pipeline supplies Slovakia, Hungary and the Czech Republic via Ukraine with more than 300,000 barrels per day of crude while another spur goes via Belarus to Germany and Poland shipping some 800,000 bpd.

The two latter states also have no guarantees of smooth supplies after the New Year as Moscow and Minsk struggle to agree on volumes of duty-free Russian oil for Belarus.

Russia's top energy official Igor Sechin said on Monday he hoped the deal with Belarus would be signed on December 30-31.

"If no deal is reached then we will have to apply full fees from January 1," he told reporters.

In 2007, Minsk suspended supplies along Druzhba after failing to clinch a deal on crude supplies for its domestic plants and agreeing on fees.

[Source: By Gleb Bryanski and Martin Santa, Reuters, Moscow, 28Dec09]

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