South East Europe at biggest risk of Ukraine-Russia gas row

Reuters

* Italy could also struggle if row clashes with Libyandisruptions

* Russian re-exports via Germany could meet some demand

* Situation not as bad as in 2009 - analysts

By Henning Gloystein and Michael Kahn

LONDON/PRAGUE, Nov 12 (Reuters) - Central and south easternEurope will bear the brunt of any halts of Russian gas suppliesthrough Ukraine this winter but the region will not be caught asunprepared as in 2009 when thousands went without heat infreezing temperatures.

A contract dispute between Kiev and Moscow spurred Russia toshut a pipeline serving central and south eastern Europe in2009, leaving hundreds of thousands of people without heating infreezing temperatures and forcing businesses to shutter.

Governments in the region now fear that a renewed rowbetween Ukraine and Russia at the beginning of this winter coulddisrupt supplies again. Ukraine halted Russian imports lastFriday in a dispute over pricing, and flows may not resume thisyear.

Ukraine usually imports most its gas from Russia and it isalso its main transit route to the European Union (EU), whichdepends on Russia for about a quarter of all its gas.

Although Ukraine says that it has enough gas in storage tomeet demand this winter, western European customers worry thatsupplies meant for them will stay in Ukraine if a cold winterpushes up demand, triggering a new supply crisis.

Analysts say that increasingly cold weather had already ledto gas storage withdrawals in Central Europe, Germany and Italy.

"Europe as whole saw withdrawals this week, with Austria(Baumgarten), Germany and Italy withdrawing some 157 millioncubic metres (mcm) of gas over the past week... a worry giventhe possible curtailing of Russian gas flows to the Ukraine,which is still a threat," research consultancy Energy Aspectssaid on Tuesday in a research report.

"We are potentially in a bind approaching the winter,"Jonathan Stern, chairman of the natural gas research programmeat the Oxford Institute for Energy Studies said in Brussels. Headded, however, that Europe was better prepared for potentialdisruptions this year than it had been in the past.

"There is not a crisis yet (and) it is not such a bigproblem as in 2009. We are in a much better situation."

The main improvement since 2009 has been the opening of anew pipeline in 2011. Russia's Gazprom has beensending gas through the 1,200 kilometre (750 mile) Nord Streampipeline from western Russia through the Baltic Sea intoGermany, avoiding transit through Ukraine.

Additionally, affected countries across Europe have improvedgas links with their neighbours and developed a mechanism toreverse gas flows allowing, for instance, a re-export of Russiangas from Germany to Poland or the Czech Republic and from thereinto Slovakia and Hungary.

The main problem of reversing gas flows is that they simplyspread existing gas but do not deliver new gas, which could beneeded if demand rises in the case of a cold snap.

"If Germany suddenly needs most of its imported gas itself,or Britain starts importing from Germany because there areproduction outages in Europe, then there may not be enough sparegas to be sent to central or southern Europe," one German gastrader said.

Although Britain usually does not use much Russian gas andwould only get it through re-exports from continental Europe,its dwindling North Sea reserves mean that it increasinglyrelies on overseas imports from for instance Norway, throughshipped liquefied natural gas (LNG), but also from continentalEurope.

"We monitor the security of our gas supplies. We've got ourown supplies, supplies from Norway, supplies from thecontinent," Britain's energy secretary Ed Davey told Reuters onthe sidelines of a conference in London on Tuesday.

ITALY & SOUTH EAST EUROPE

Potentially worst hit by a renewed gas crisis would be thefar southeast of Europe, where there are no major gas links withneighbours.

"If the gas stops flowing, there is a very dark scenario forBosnia, which has no reserves and nearly all gas comes fromRussia. On top of that, BH Gas has no funds to buy gas on thespot market," said Almir Becarevic, an advisor to Bosnia'sindebted main gas distributor BH Gas.

In a drive to dampen the effect of future rows betweenRussia and Ukraine in central and southern Europe, Gazprom andits partners, Italy's Eni, France's EDF andGermany's Wintershall has begun building the SouthStream pipeline, which plans to start exporting Russian gas viathe Black Sea into southern and eastern Europe from 2015, againavoiding transit through Ukraine.

But until then, the region remains vulnerable to suchdisputes and Italy, one of Europe's biggest economies and gasusers, could also be hit.

Italy receives almost 40 percent of its gas from NorthAfrica, but supply disruptions in Libya and general concern overNorth African stability have sparked efforts to shift towardsmore Russian imports, which currently meet 35 percent of needs.

Should Russia's flows to Italy halt, it could find itselflooking to meet almost 40 percent of its needs from alternativesources in the midst of the year's peak heating season.

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