Russian Gas Row May Cost Uk Customers

Hopes of deep cuts in heating bills for British homes before the winter is out were evaporating yesterday after Russia turned off the gas supply to neighbouring Ukraine over alleged payment arrears, raising concern about the security of supplies throughout Europe.

Pipelines that cross Ukraine carry about a fifth of the European Union's gas needs and politicians across the continent yesterday urged the two sides to resolve their dispute as quickly as possible.

"We urge both parties to treat this as a commercial matter and seek agreement through negotiation," said Britain's Department of Energy. "All existing commitments to supply and transit must be honoured," said the Czech deputy prime minister, Alexandr Vondra, hours after the republic took over the EU presidency.

Ukraine has said it would not block Russian gas getting through to other countries, and energy firms in Germany, France, Romania and Austria said yesterday they had not experienced any drop in supply.

A similar dispute two years ago resulted in a fall in supply to other countries for a short period but Russian export monopoly Gazprom said it had increased output to European customers beyond Ukraine to ensure this does not happen again.

Many industry watchers are concerned that the row over Ukraine's gas bill arrears will affect renegotiation of transit pipeline deals vital to the energy security of Europe.

One well-placed regulatory source said he expected developments in Ukraine to have a "potent effect" on short-term gas prices when traders return to their desks this morning. Joe Malinowski, founder of the price comparison website TheEnergyShop.com, added that uncertainty created by the Ukrainian standoff would leave many British energy suppliers reluctant to commit to substantial cuts in household bills, despite pressure from ministers and fuel poverty campaigners.

"If I was a supplier I would want to watch the situation for a bit longer. I would not want to cut too deep, too quickly and then have to go into reverse if wholesale prices jumped."

Several supplier firms have conceded that household energy prices, set last summer, have been dramatically out of alignment with tumbling wholesale prices in recent months. They have promised that, should the discrepancy persist, they will cut prices accordingly by the spring at the latest. Before developments in Ukraine, analysts had forecast average bills would be cut by between 10% and 20%.

But last night some suppliers were saying privately that the UK could be caught out by a sustained period of uncertainty over gas supply because its storage infrastructure is much less than that of other countries. Britain has enough stored to meet peak winter gas requirements for 15 days, compared with 80 days in France.

Government officials last night dismissed suggestions the UK supply chain could be affected by the row between Ukraine and Russia. "We have diverse sources of gas supply which means we are not reliant on any single supplier," a spokesperson for the Department of Energy said. "The UK imports less than 2% of its gas from Russia so this dispute is not expected to impact UK supplies."

Rapidly depleting North Sea gas fields left Britain reliant on imports for 40% of its gas requirements last year - a proportion expected to rise to 50% for 2009.

When gas negotiations reached a similar impasse in 2006, Russia's supply cut resulted in reduced shipments to Europe and a short spell of volatile wholesale prices. Documents obtained through the Freedom of Information Act showed in 2006 that the industry secretary, Alan Johnson, was briefed eight times on the resulting threats to energy security.