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Moscow Times
November 17, 2009
Russia Agrees to Warn EU of Future Gas Cuts
By Maria Antonova and Anatoly Medetsky

Russia and the European Union on Monday agreed to work together to prevent potential disruptions in their energy trade as they looked for ways to prevent a repeat of last winter’s crippling transit crisis in Ukraine.

Energy Minister Sergei Shmatko and EU Energy Commissioner Andris Piebalgs signed a memorandum establishing an early warning mechanism that will prompt both sides to join forces for a solution of any problem, commercial or technical, that might threaten deliveries.

“An energy crisis like the one the EU suffered in January is harmful for supply, transit and consuming countries alike. We need to do everything necessary to make sure that such a situation never happens again,” Piebalgs said in a statement after the signing.

“I’m confident that the implementation of this mechanism will be a powerful tool to prevent … the transit or export of energy to the European Union being reduced or cut off,” he said.

The new system covers oil, natural gas and electricity supplies and requires Russia to notify the EU of any likely interruption, triggering consultations and joint prevention efforts, the statement said.

Third parties, such as transit countries, would be allowed to take part in the arrangement.

Russia cut off EU-bound gas supplies through Ukraine for several weeks in January as the two countries argued over payment. Russia supplies about 25 percent of Europe’s gas, and 80 percent of this flow passes through Ukraine’s pipelines.

The agreement is “clear evidence of the good will of both sides to work together in a trustworthy and mutually beneficial way, building ways to prevent and solve problems, even before they happen,” European Commission President Jose Manuel Barroso said.

Shmatko said the agreement is not directed against Ukraine or any other transit countries and does not call for any sanctions against them.

Russian authorities have repeatedly said problems with transit through Ukraine might arise as soon as Kiev, hard hit by the economic crisis, defaults on any monthly payment for gas imports intended for domestic consumption. In this event, Ukraine will stop receiving its gas and may tap into European deliveries, Russian officials say.

The prospect of a default appeared more likely Monday when Ukraine announced that its economy had plunged 15.9 percent in the third quarter year on year. Gas trade may also fall prey to a campaign unfolding in the run-up to a presidential election there in January.

Monday’s memorandum does little to reduce the risk of disruptions because it is ultimately up to Gazprom to decide whether to turn off the tap, said Mikhail Korchemkin, executive director of East European Gas Analysis, a U.S.-based consultancy.

In other remarks, Shmatko said Monday that Russia intended to sign a new intergovernmental gas agreement with Ukraine that would lay out a strategy of bilateral cooperation and affirm Russia’s intention to take part in upgrading Ukraine’s pipelines. Work on the agreement began in April and will continue next year, he said.

Russia has been insisting on having a role in the upgrade because Gazprom is the biggest user of the pipelines. Moscow was infuriated in March when Ukraine struck an agreement with the EU that invited EU companies to help overhaul the system and ignored Russia.

Shmatko was upbeat about oil production, saying he expected Russian companies to invest enough to produce as much oil next year as this year. The ministry’s current oil extraction forecast for 2009 is 493 million tons.

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