As Russia’s Gazprom admitted that it had cut gas supplies to Europe at the height of the current cold spell, Ukraine said it is ready to help Russia deliver the necessary volumes of gas to Europe and called for greater European cooperation to modernise its gas transport infrastructure and improve energy security for the EU.

Italy, Austria and France were reporting cuts of as much as 30 percent of Russian gas over the weekend. Analysts have said that Ukraine, which as a transit country accounts for more than 70 percent of Russian gas shipments to the EU, is as much a victim of Moscow as the rest of Europe.

Gazprom Deputy Chief Andrey Kruglov was reported to be conferring with Prime Minister Vladimir Putin, who has in the past both threatened and implemented cuts to Ukraine and the EU.

Ukraine’s Energy Minister Yuri Boiko was quoted by news agencies saying that shipments to Ukraine had fallen in recent days. Gazprom admitted this but claimed the reason was Russia’s enhanced need because of the cold. Ukrainian President Viktor Yanukovych meanwhile called on energy market participants to seek joint solutions for the future.

“We rely on our European partners, international financial institutions to implement the agreements on their participation in upgrading Ukraine’s gas transportation system,” the Ukrainian president said at the 48th Munich Security Conference on Friday.

He stressed that the situation showed the need for cooperation among all parties and respect for clear, transparent and fair rules of the game in the energy sector. There was a need to balance the interests of Ukraine as the main transit country, Russia as the main supplier, and the European Union as a consumer, President Yanukovych said.

In his speech at the Munich conference, the Ukrainian president also spoke of what he termed the one-sided conditions of the 2009 gas contract with Russia. In 2009, then Prime Minister Yulia Tymoshenko, signed a multi-billion and multi-year dollar gas deal with Vladimir Putin’s Russia that is currently forcing Ukraine to pay more than $500 a cubic meter for Gazprom’s supply of gas, even though world market prices are around $400 per cubic meter.

Analysts in Washington are concerned that Russia may be using its Gazprom supplies to pressure Ukraine to submit to closer Soviet-style ties. They fear that Moscow may try and use its energy supplies and pricing to stop President Yanukovych from his announced aim of signing an Association Agreement with the EU and developing closer ties with Europe.

The recent trial and conviction of Opposition leader Yulia Tymoshenko, who was herself a one-time business partner of Russia in the natural gas sector, focussed on her signing of the high-priced 2009 deal with Gazprom without any Cabinet consultation when she was Prime Minister. It was that same deal which is now causing Ukraine to find itself in financial difficulty and a potential hostage of Moscow’s leverage.

 
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At the click of a single button, Russian Prime Minister, Vladimir Putin, opened the first Nord stream gas pipeline this week. The pipeline is located at the portovaya compressor station, along at the Russian-Finnish border.

The 1220 km Nord Stream Pipeline was constructed in order to deliver gas directly from Russia’s Vyborg to Germany’s Greifswald across the Baltic Sea. Thus far, the Nord Stream is a twin pipeline, which cost $12.5 bn to build. On completion of the second pipeline by 2013, the system will be able to move 55 bn cu m of gas per year, according to the British Broadcasting Corporation (BBC).

According to Putin, for the next 50 years, the Nord Stream will supply an annual of 55 billion cubic meters of gas not only to Germany but also to the United Kingdom, Denmark and Netherlands.

Many see the benefits of this new tactic. “Nord Stream is important as it will reduce supply uncertainty and price volatility in the winter,” John Fahy, managing director of London-based consultants Eras Ltd., said in an e-mail, according to Businessweek.

Prior to the Nord Stream, Russia relied on land based transit and transportation of gas via Ukraine. The Ukraine and Russia often disagreed. A major conflict in 2006 between Russia and the Ukraine occurred when Ukraine failed to agree with Russia on a price issue.

According to Russian authorities, Ukraine often refused to pay the prices that Russia asks for; this battle has been an on-going issue from the time of movement the Soviet Union collapsed. Russia also accuses Ukraine of siphoning gas to cover its own shortages. In 2009 the battle over gas prices between Russia and Ukraine reached an extraordinary scale.

These conflicts resulted in Russian stopping the supply of gas in winter to Europe, during the coldest temperatures. This left many European customers shivering without heat. According to Reuters, the pipeline will lesson Russia’s reliance on Ukraine who currently transports close to 80 percent of its exports to Europe.

With a lucrative market for its natural resources, many forecast that Moscow will profit off this new system. Meanwhile, the Ukraine is showing concern over the situation, feeling as though Russia is backing out on their working relationship. “You cannot just unilaterally break a contract,” Ukraine’s Deputy Prime Minister, Igor Sechin, told reporters at the Nord Stream launch.

Sechin is a close ally of Putin, Reuters said. At the launch, Putin commented on the circumstances. “As with any other transit country, there is always a temptation to exploit its unique transit status” and that, he said, is ending. Businessweek reported that the Nord Stream pipeline will carry enough gas to supply 26 million European home.

Completion of the first phase of Nord Stream has increased doubts of Ukraine’s future gas purchases from Russia and the process of negotiation is also under doubts. Construction of Nord stream is not the only blow to transit nations since Russia also unveiled plans for construction of a South Stream which will run from Southern Russia to Bulgaria under the Black Sea.

Some say supply disruptions will be the thing of past upon the completion of second and third phases of the project.

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