Russia"s natural gas supplies bound for a freezing Europe were halted again on Tuesday only a few hours after a truce had been announced in its "gas war" with Ukraine. The Gazprom energy giant accused Ukraine of blocking gas bound for Europe, while Ukraine blamed "unacceptable" technical conditions imposed by Russia.

The breakdown again infuriated the European Union as hundreds of thousands of people shivered in the depth of winter and factories and schools remained closed in many countries.

European Commission chief Jose Manuel Barroso telephoned Russian Prime Minister Vladimir Putin, to express the "EU"s disappointment" at the new hurdles.

"Ukraine has blocked all our actions in respect of renewal of the transit of natural gas through Ukraine, which is unbelievable," said Gazprom"s deputy chief executive Alexander Medvedev. "In these circumstances we again don"t have the physical possibility to transit gas to European customers and the whole responsibility for this lies on the Ukrainian side," he added.

Russian state-controlled gas behemoth, Gazprom, has accused the United States of orchestrating the Ukraine"s actions in the gas dispute that has left Europe with gas shortages. Russia started pumping transit gas destined for European consumers into the Ukraine earlier today for the first time since transit supplies were halted on January 8.

"We believed yesterday that the door for Russian gas was open but again it"s been blocked by the Ukrainians," Gazprom deputy chief executive Alexander Medvedev said on a conference call with reporters. "It looks like... they are dancing to the music which is being orchestrated not in Kiev but outside the country."

Mr Medvedev said he was referring to an agreement signed between the Ukraine and the United States. He did not name the agreement.

BRITAIN’S gas network operator is on the verge of issuing an emergency alert that could lead to cuts for industrial users and potentially affect Ireland, which takes 90% of its supply from Britain.

The National Grid in Britain said it could issue the “gas balancing alert” in the next two to three days because reserves had fallen to less than a week’s supply of UK needs.

Suppliers were forced to dip into reserves last week after energy companies began siphoning gas out of Britain to supply other parts of Europe.

Bord Gais said on Wednesday that consumption had reached a two-year high due to cold weather but it would take months before the row between Russia and Ukraine would cause a shortage in Ireland.

“The conflict would have to run into months before it would be a problem for Britain and Ireland,” said John Mullins, the Bord Gais chief executive.

It looks to me that Gazprom seems to be thinking that it had successfully managed to put the blame for the conflict on the Ukrainians, and was trying to push its advantage and finally separate the issue of payment for gas delivered to Ukraine from that of the transit of gas (thanks to the European monitors enlisted to put the blame on Ukraine for blocking further gas deliveries).

But it looks like we"re back to square one: the Ukrainians will not accept to pay for the portion of the gas delivered by Gazprom, and will still hold transit hostage to impose that. It will be interesting to see Europe"s reaction, but I don"t see them taking sides in favor of Russia in this conflict.

I presume that Gazprom sees little downside to this, expecting that this will improve the prospects of its direct pipeline projects like Nordstream and Southstream, but this might be a bad miscalculation.

With the nuclear lobby strengthened in recent years, and wind industry actually able to deliver, it"s quite possible that plans to move away from gas-fired power generation could finally take shape and make Europe, for almost the first time, focus on the demand side of the equation.

Gazprom"s main asset has been its reliability. Its extended shenanigans in Ukraine (where their case, once again, is rather narrow and weak, altogether) are endangering this a lot more than they improve prospects for additional revenue from Ukraine.

he hardship imposed on Central and Southeastern Europe by the delivery hiatus of Russian gas via Ukraine has unleashed a free flow of speculations about the future of the Nabucco pipeline project. Nabucco could bring Europe a modicum of badly needed independence from Russia’s state-dominated Gazprom, the world’s largest gas company. It could also provide some protection against being held hostage by the endless wrangling between Moscow and Kiev over prices, pilfering, and unpaid bills.

To seal the deal and make final commitments, a summit is scheduled in Budapest on January 26-27, with the participation of consortium members (Austria, Bulgaria, Germany, Hungary, Romania, and Turkey) and potential suppliers (Azerbaijan, Egypt, Iraq, Kazakhstan, and Turkmenistan), the European Union (as represented by the Czech Republic, which is currently filling the role of the Union’s rotating presidency, and the EU energy commissioner); the Council of Europe and the European Bank for Reconstruction and Development. Invitations have also been extended to the United States, Russia, and Georgia -- a temporary transit country for Caspian gas shipped to Turkey.

While the most recent bout between Russia and Ukraine appears to raise Nabucco’s prospects, other news and the entire constellation of circumstances leading up to the summit are discouraging.

Nabucco’s stage, cast, and maddening difficulties of orchestration
With an estimated construction cost of $10 billion, the pipeline would transport Caspian and Mideastern gas along its 2,050-mile long route from Erzurum, Turkey, through Bulgaria, Romania, and Hungary, to the Baumgarten Hub in Austria, from where further customers in Central and Western European would be served. If construction begins next year, as currently envisaged, the system could become operational by 2013, and could reach its full throughput capacity of 31 billion cubic meters per annum (bcm/y) by 2020. The Nabucco consortium is managed by Austria’s OMV, Central Europe’s top oil and gas group, and includes the leading energy companies of the rest of the four countries along its route, plus the German utility giant, RWE.

Nabucco enjoys EU support and U.S. approval, yet it has been struggling from the start. It has to compete for Caspian and Mideastern gas resources not only with formidable Gazprom, which is building up its capacity to serve European markets, but also with China, to some extent India, and with other projects designed to reduce Russia’s grip on Europe’s energy sector.

Gazprom’s ability to deliver gas to Europe will increase through the construction of the North Stream (completion date 2012), the South Stream -- Nabucco’s direct rival -- with 2015 as the completion date; and the expansion of the Blue Stream, supposedly ready by next year. The main Gazprom-competing projects, in addition to Nabucco, are the Turkish-Greek-Italian Gas Connector (completion date 2012), the Trans-Adriatic Pipeline (completion date 2012), and the White Stream or Georgia-Ukraine-EU line (proposed).

Visit my Blog...