Ukraine far from helpless in energy duel with Russia

Kiev - Russia is screwing down on the natural gas taps to Ukraine, and as Kiev media spin would have it, it's a case of the all-powerful Kremlin dropping the energy hammer on a helpless former Soviet republic.

But as Europe's latest energy crisis accelerated on Tuesday, with natural gas imports from Russia to the continent down a third and plummeting, Ukraine was playing a surprisingly strong hand against Moscow.

Preparations for a gas war with Russia, Ukrainian energy analysts said, began months ago. Taking advantage of dirt-cheap dollars available because the national bank was propping up the Ukrainian currency the hryvna, Ukraine's state natural gas monopolist Naftogaz Ukrainy piled up gas reserves throughout 2008, and invested in increased underground storage capacity to boot.

When the 2009 Russian gas embargo hit, Ukraine according to Naftogaz officials held some 30 billion cubic metres of natural gas somewhere in the country, of which 17 million actually belonged to Naftogaz. It was the largest natural gas stockpile amassed in Ukraine in a generation, the Interfax news agency reported.

The "national gas reserve," as Ukrainian President Yushchenko called it in an early January speech, is sufficient to supply Ukraine's gas needs for somewhere between three and six weeks, energy industry analysts said.

A Ukrainian decision to tap into reservoirs of foreign-owned gas - widely considered inevitable in Ukraine as the foreign owner is overwhelmingly Russia's Gazprom - could double Kiev's capacity to live without Russian gas, effectively until the end of winter.

Another card up Yushchenko's and Prime Minister Yulia Tymoshenko's collective sleeve is Ukraine's power-generation capacity, observers said. Ukraine is far from energy-poor, pumping one-third of its natural gas needs from domestic production, generating half its electricity with nuclear power, and sitting on massive coal reserves that become that much more competitive, with every Gazprom gas price spike.

On the media front, Ukraine arguably stole a march on the Russians at the outset of the crisis, paying off a 1.5 billion dollar debt to Russia for gas used only hours before the end of 2008, after Gazprom had taken the decision to close the taps, but technically prior to a January 1 Russian deadline to pay up or else.

The late December cash transfer, according to Ukrainian financial observers have probably been impossible had the International Monetary Fund not forked over a 16 billion dollar emergency loan to Kiev earlier in the month, left Russia (according to Kiev) without its best pretext for beginning a gas war: that the Ukrainians were not paying their bills.

Robbed of their traditional ability to paint the Ukrainians as deadbeats, Gazprom media managers were left with the more difficult task of explaining to their European customers why Gazprom's rendition of the arcane Russo-Ukrainian natural gas relationship, is somehow more valid than Kiev's.

The Russians of course gave their Ukraine-bashing best shot, explaining that Kiev failed to pay 500 million dollars in penalties, negotiated in bad faith, was too greedy to accept generous Gazprom terms before the crisis broke, and that once it did the Ukrainians reverted to their old habits of stealing gas earmarked for Europe, and not paying for it.

But Ukraine's counter-polemics have, for hapless European consumers at least, been quite as compelling and confusing as Gazprom's. According to Kiev, gas removed from the pipelines isn't stolen, but needed to maintain pressure. Far from nicking European gas, the Ukrainians sent Europe gas from their own reservoirs, doing their best to maintain a steady supply to Europe.

The official and oft-repeated Ukrainian spin on the conflict, that a democratic European country is doing its best to stand against a Kremlin energy onslaught, is unfortunately for the Kremlin a line with at least some traction in Europe, given Russia's August invasion of Georgia.

But perhaps the most powerful Ukrainian trump of all, in the battle of nerves now raging between Moscow and Kiev, was evident in an uncharacteristically worried statement from none other than mighty Gazprom itself, whose media division announced on Tuesday "corporate income might well be down" were the Russo-Ukrainian standoff to continue.

With Russian deliveries to Europe via Ukraine already cut by two- thirds, and gas prices at all-time highs, the cash flow of Russia's largest corporation Gazprom will be shorted between 100 and 150 million dollars every 24 hours it has no gas shipment agreement with Ukraine, according to a Ukrainian energy industry estimates.

"Our image with Europe is nothing, the price of (Russian) gas for Ukraine is everything," Gennady Kurochka, a Kiev-based energy industry consultant, wrote in the authoritative Ukrainska Pravda web magazine. "So now the battle lines are drawn ... and we are deadlocked." (dpa)

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