Gazprom Woes Leave Europe Shivering

MOSCOW, Jan. 8, 2009 — -- Countries across Europe declared a state of emergency as Russian natural gas supplies to the region were cut off for a second day over a pricing dispute between Russia and Ukraine.

The heads of Russia's Gazprom and Ukraine's Naftogaz met overnight in Moscow and are in Brussels, Belgium, today to hold talks with the European Union, but there is no sign of an imminent agreement.

The dispute began at the end of December when Russia announced that it would be raising the price of gas for Ukraine to $250 per 1,000 cubic meters, up from $179.50 last year. Ukraine said that this was excessive and offered to pay $201, leading Russia to angrily up the price to $450. Ukraine refused to pay and on New Year's Day Gazprom halted all supplies of gas for Ukraine's domestic consumption.

Alexander Medvedev, Gazprom's deputy CEO, insisted that the price increase was reasonable.

He told reporters, "If Ukraine was to pay European market prices for gas deliveries at this point, it would pay $450 per 1,000 cubic meters [the current European market price.] If Ukraine bought Central Asian gas from us at the Russian-Ukrainian border, that price would be $380 per 1,000 cubic meters."

On Wednesday Russia went one step further, stopping all deliveries of Russian gas to Europe through Ukraine.

Russia claims that it merely reduced the output by the amount it believed Ukraine was siphoning off for domestic consumption. It accused Ukraine of blocking the pipelines. Ukraine claims that without sufficient pressure the pipelines do not function effectively and accused Russia of deliberately starving Europe of gas.

On Wednesday night European Commission president Jose Manuel Barroso said that both Ukraine and Russia have agreed to accept international monitors to independently verify the flow of gas.

One-fifth of Europe's natural gas comes from Russia through Ukraine and the supply cut had immediate effects. Romania and Slovakia declared a state of emergency and Bulgaria called it a "crisis situation." Images from across Central and Eastern Europe showed people buying electric heaters and chopping wood for fires, as many were without heat as temperatures plunged below zero.