Russia-Ukraine Crisis: Gazprom Awards Contract to Rolls-royce

Gazprom today launched a charm offensive in London by awarding Rolls-Royce a compressor contract for the new Russian-European gas pipeline, in a desperate attempt to avoid the latest confrontation with Ukraine over gas supplies turning into a wider commercial and political row with the west.

Rolls-Royce has won a contract to supply eight gas turbines driving compressors for the new 1,200km Nord Stream gas pipeline from Russia to Europe. The first compression packages are expected to be shipped in May 2010. Rolls-Royce described the contract as another "major development" for the company in Russia this year. It opened a new office in St Petersburg in June.

Alexander Medvedev, the deputy chairman of Gazprom, will insist at a press conference today that the Russian gas group has been doing all it can to avoid cutting off energy to Ukraine on 1 January, something that looked increasingly likely after more talks in Moscow failed to reach agreement.

Vladimir Putin, the Russian prime minister, tried to break the deadlock in an hour-long telephone talk with Ukrainian president Viktor Yushchenko but admitted later there was "no deal" over the back payment of gas debts.

Gazprom also launched a specially created website yesterday designed to dilute criticism over the row with Ukraine. It argues that the state-owned gas group had "left no stone unturned" in its efforts to try to retrieve outstanding energy payments without halting supplies.

Explaining why Medvedev would address western media directly, a London-based spokeswoman for Gazprom said: "We just want people to see what is happening and to understand that this is a commercial dispute over which Gazprom has been doing all it can to avoid cutting off gas.

"We are still hoping that ongoing talks with Ukraine will enable us to find a solution."

Russian and Ukrainian energy executives continued talks in Moscow yesterday to try to clinch a last-minute deal that would allow Kiev to receive gas from the start of next year, when the old annual contract comes to an end.

Gazprom claims it cannot renew deliveries until it has been paid more than $2bn in arrears and damages.

"Our team went to Moscow. The main issue is to resolve the financial problems and the issue of future supply and gas price," said Valentyn Zemlyansky, spokesman for Ukraine's state energy company, Naftogaz.

Gazprom has already warned European customers it fears Ukraine could resume siphoning gas from transit pipelines. But Kiev says it will respect all obligations and has enough reserves to withstand a cut that would damage the wider continental gas market.

Political leaders in the European Union and the US have called on both sides to reach a compromise to guarantee uninterrupted supplies to Europe.

Both countries are grappling with the effects of the global financial crisis, with production down, jobs cut and currencies being devalued.

A political dispute in Ukraine between the president, Viktor Yushchenko, and prime minister, Yulia Tymoshenko, is aggravating the dispute as the two sides deliver conflicting statements about gas relations with Russia.

"I would not like to see the Ukrainian delegation celebrating the new year near Gazprom and [Gazprom] showing how the taps are being turned off," Ukraine's parliament chairman, Volodymyr Lytvyn, told Ekho Moskvy radio while visiting Moscow.

"In today's difficult situation Russia has to show generosity," said Lytvyn, elected as the assembly's chairman this month with a reputation as a skilled mediator.

Gazprom has proposed Ukraine count the debt against future fees and that it return stockpiled gas. Ukraine has refused. The countries have yet to agree 2009 prices.

Backstory

The west is nervous about a stand-off between Russia and the Ukraine, primarily because it could disrupt gas supplies in winter when demand is at its highest. But there is also concern about Putin, pictured above, using energy as a political weapon at a time when many countries are increasingly dependent on foreign gas.

Gazprom cut off gas exports to Ukraine in the winter of 2006 during a similar spat over the price of future supplies and there have been arguments on an annual basis.

Many analysts believe the disputes are also a result of Ukraine, a former Soviet republic, seeking closer links with Brussels and Washington rather than Moscow. When Russia last cut off supplies to Ukraine, Kiev authorities siphoned off Russian gas from pipelines headed for western Europe, causing shortages. The same could happen again, but Gazprom says it will fulfill obligations to continental customers.