UKRAINE: GAZPROM MAKES GOOD ON THREAT--REDUCES GAS

UNCLAS KYIV 000469 SIPDIS SENSITIVE SIPDIS DEPT FOR EUR/UMB, EB/ESC/IEC - GALLOGLY/WRIGHT DOE PLEASE PASS TO LEKIMOFF, CCALIENDO USDOC FOR 4231/IEP/OEENIS/NISD/CLUCYK E.O. 12958: N/A TAGS: EPET EFIN ECON ENRG PREL UP SUBJECT: UKRAINE: GAZPROM MAKES GOOD ON THREAT--REDUCES GAS TO UKRAINE BY 25% REF: A. KYIV 461 ¶B. KYIV 451 Sensitive but Unclassified. Not for Internet Distribution. ¶1. (U) At 9:34 a.m. Kyiv time, NaftoHaz press officials told us that the state-owned gas pipeline operator Ukrtranshaz had received an official telegram from Gazprom confirming that gas supplies to Ukraine would be reduced by 30 million cubic meters (mcm) per day for an unspecified time. The announcement came two days after Prime Minister Yuliya Tymoshenko told the press she was sure there would be no cut-off. Gazprom spokesman Sergei Kupriyanov emphasized that although Gazprom had ordered the 25% reduction of gas to Ukraine, European supplies would not be affected. He noted that Ukraine's inability to solve the outstanding gas debt and the fact that new contracts between Gazprom and NaftoHaz have not been signed resulted in the cut-off, adding that Gazprom was still ready to continue talks with the Ukrainians (ref B). ¶2. (SBU) As news of the gas reduction spread in Ukraine, NaftoHaz officials pledged that the reduction in gas would not affect European or Ukrainian consumers. NaftoHaz official Valentyn Zemlyanskiy stated that transit volumes were not affected and reserves from underground storage facilities would be used to cover gas consumption in Ukraine. Ukraine's daily consumption in the winter normally averages about 280 mcm. With winter ending, energy experts hypothesize that current consumption is likely closer to 180 mcm per day. It appears that the 30 mcm Gazprom reduced today corresponds to a 25% reduction in gas, which suggests that Ukraine had been receiving about 120 mcm per day from Gazprom. Energy experts we spoke to explained that a 25% reduction would trigger an automatic lifting of gas from the underground storage facility to offset Gazprom's reduction and ensure that neither Ukrainian nor European consumers are short-changed. They estimated that there is enough gas in Ukrainian underground storage facilities to cover 280 mcm (estimated average winter consumption) for 1.5 months. (Comment: What is not clear who owns the remaining gas in Ukraine's storage -- most presume the lion's share is held by Gazprom, RUE, or UkrHazEnergo. If Ukraine uses this gas, it will need to compensate the owners sooner or later.) ¶3. (SBU) While there were some panicky rumors running around of a complete shut-off of gas to consumers (which did not even happen in January 2006),Prime Minister Tymoshenko assured consumers they could count on gas supplies. She also announced it would be a priority for her government to enact energy-saving measures to prepare Ukraine for the next winter. A few short term fixes are also conceivable. Individual municipal heating facilities could also reduce the amount of gas consumed as well, for example by reducing marginally temperatures in buildings, which is unlikely to pose severe dislocation, as Kyiv's temperatures remain in the 40s.. Pro coalition politicians have called the recent cut-off nothing more than Russian political pressure, designed to force the Ukrainians to make gas deals with the Russians on their terms. NaftoHaz promised to send a delegation to Moscow by the end of this week for another round of talks. Taylor