Gas Standoff

Russia's Gazprom said on Wednesday its engineers were starting preparations for a Jan. 1 cut-off of gas to Ukraine that could have an impact on supplies to Central and Western Europe.

The CEO of the energy giant, Alexi Miller said the decision to shut off the flow of natural gas was made after last-minute negotiations with Ukrainian gas firm Naftogaz ended without agreement on how much Ukraine will pay for shipments in 2009. Miller also told reporters Gazprom had not yet received the money Ukraine said it transferred to cover its debt for deliveries in 2008.

"From 10:00 am (0700 GMT) on January 1, 2009, Gazprom will fully, 100 percent, stop deliveries of gas to Ukraine," Miller said. "All responsibility lies with the Ukrainian side."

The CEO said Gazprom would do its best to make sure European consumers receive their gas on time. Gazprom supplies a quarter of all the natural gas consumed in Western, Central and Eastern Europe. Over 80 percent of those supplies pass through pipelines in Ukraine.

European gas supplies at risk?

Ukraine's state gas company promised on Wednesday that despite the collapse of talks with Russia, supplies to European neighbors would continue uninterrupted. Naftogaz spokesman Valentin Zemlyansky, speaking to reporters after the talks in Moscow, guaranteed the flow of gas to Europe would remain secure.

But earlier in the day, Gazprom warned that the flow of gas to Europe was in jeopardy and accused Ukraine of blackmail. Alexander Medvedev, Gazprom's deputy chief executive, produced a letter he said contained a warning from Naftogaz that Kiev could divert gas transiting Ukraine if Gazprom capped its supplies.

"We are in a situation when transit volumes to Western Europe are in danger," Medvedev said at a press conference in Moscow. "This position cannot be called anything but blackmail."

Prime Minister Vladimir Putin said any violation of supplies of Russian gas to Europe would constitute "a completely different matter with very severe consequences for the transit country."

Europe following developments

The authenticity of the letter alleged by Gazprom to have been sent by Naftogaz could not be independently verified. Ukraine's political leaders and Naftogaz officials have made no such threat in public. They did not however deny Wednesday the contents of the Naftogaz letter.

During a similar dispute between Moscow and Kiev in January 2006 when Gazprom also cut supplies on New Years day most European countries began experiencing shortages a few days later. At the time Gazprom accused Ukraine of stealing gas in transit, but Kiev denied it.

In light of these events, and following a telephone call from Putin warning the European Commission chief Jose Manuel Barroso of "possible consequences" for European consumers, Brussels is keeping a close eye on the situation.

"We are following developments very closely," said commission spokeswoman Christiane Hohmann and confirmed that EU Energy Commissioner Andris Piebalgs had been in talks with both sides "encouraging them to find a negotiated solution."