Jan. 2 (Bloomberg) -- Russia and Ukraine prepared to resume talks in their dispute over natural gas prices after OAO Gazprom cut supplies to the former Soviet state for the second time in three years.

Ukrainian President Viktor Yushchenko said in a statement yesterday the two sides are near a compromise, urging state utility NAK Naftogaz Ukrainy and Gazprom, Russia’s gas exporter, to meet again in the next one or two days. Gazprom also proposed talks.

The repeat of an energy standoff between the former Soviet neighbors risks further souring Russia’s ties with the West, months after its war with U.S. ally Georgia. Russia, which supplies a quarter of Europe’s gas, mostly through Ukraine, cut Ukrainian deliveries in January 2006 amid a similar dispute. That shutdown reduced gas flows to Europe and led to questions over both countries’ reliability as energy suppliers.

“Talks are in a holding pattern, as there are no looming deadlines,” Alfa Bank Chief Strategist Ron Smith said by telephone from London today. “Ukraine has gas in storage, reportedly, and gas is flowing into Europe.”

Talks Urged

Gazprom cut supplies to Ukraine at 10 a.m. Moscow time yesterday after the country rejected a Russian offer to sell it gas this year at $250 per 1,000 cubic meters, and insisted Russia pay higher transit fees. Naftogaz Chief Executive Officer Oleh Dubina said Ukraine offered on Dec. 31 to pay Russia $235 per 1,000 cubic meters, compared with the 2008 rate of $179.50.

U.K. February gas fell 2.70 pence, or 4.6 percent, to 56 pence a therm, according to data from broker Spectron Group Ltd. That’s equal to $8.13 a million British thermal units. A therm is 100,000 Btus. It rose as high as 60 pence earlier today, the first trading session after Russia cut supplies to Ukraine yesterday. Dutch gas for February fell 3.7 percent to 20.60 euros ($28.72) a megawatt hour.

The main consumers of Russian gas transported through Ukraine said they are so far unaffected or are prepared for any drop. Hungary, Poland, Slovakia and the Czech Republic today said their supplies have so far been unaffected. Italy said it can meet any short-term demand from storage and could, if necessary, increase supplies from Algeria.

European Supplies

The European Union urged Russia and Ukraine to “rapidly” resolve their dispute and said it counted on assurances gas supplies would continue uninterrupted. A Ukrainian delegation led by Energy Minister Yuriy Prodan left on a tour of European capitals to hold talks on the dispute, according to a government statement.

Gazprom spokesman Sergei Kupriyanov said yesterday price wasn’t the main issue holding up an agreement, telling reporters in Moscow the Ukrainian delegation that broke off talks on Dec. 31 didn’t have a mandate to sign a contract.

“We are getting the impression that there are some political forces in Ukraine that are very interested in seeing a gas conflict between our countries,” Gazprom Chief Executive Alexei Miller said on Dec. 31. “All responsibility for this situation lies with the Ukrainian side.”

Miller said in a statement on the Gazprom Website that Ukraine would have to pay $418 per 1,000 cubic meters for its gas, the European market rate, following its rejection of the $250 offer.

Gas Transit

The threat to European energy supplies is less severe than during the 2006 dispute, because liquefied natural gas shipments have diversified supplies and utilities say they have sufficient inventories. Ukraine says it has gas in storage equivalent to about 35 percent of annual consumption.

In 2006, some consumers, including in Hungary and Italy, registered shortfalls in shipments in the shutoff, which lasted for more than two days.

Ukraine is guaranteeing the stable transit of Russian gas to the European Union, Yushchenko and Prime Minister Yulia Timoshenko said yesterday in a joint statement on the president’s Web site.

Ukraine faces “serious consequences” in its relations with Russia and its reputation among consumers in EU countries should it disrupt Russian natural-gas supplies to Europe, Russian Prime Minister Vladimir Putin warned on Dec. 31.

Gazprom yesterday halted deliveries of 110 million cubic meters a day of gas destined for Ukraine. Gas pumped to European customers was increased by 20 million cubic meters above normal volumes to 326 million cubic meters a day, Kupriyanov said.

Debt Payments

“There’ll only be a shortage if the conflict lasts a long time,” said Ben Warner, spokesman for GasTerra BV, a gas- trading venture between the Dutch state, Royal Dutch Shell Plc and Exxon Mobil Corp., yesterday by phone. GasTerra is based in Groningen, the Netherlands.

The failure to agree on new contract terms came after Ukraine sought to defuse the conflict by pledging to settle part of debts of $2.1 billion for gas received in November and December, plus fines.

The U.S. would like to see a restoration of normal deliveries and the two sides “should be resolving their differences through good-faith negotiations, without supply cutoffs,” White House spokesman Gordon Johndroe said in an e-mailed statement.

Funds Transfer

Naftogaz said on Dec. 31 it transferred $1.52 billion to RosUkrEnergo AG, the Swiss-based trader half-owned by Gazprom that imports the gas from Russia, and will seek international arbitration over at least $450 million in fines for late payment levied by Gazprom.

Naftogaz on Dec. 31 also asked for a transit rate for Russian gas of $1.80 per 1,000 cubic meters per 100 kilometers (62 miles), while Yushchenko’s office said $2 would be an appropriate tariff. That compares with the agreed 2008 rate of $1.70. Russia is refusing to renegotiate the transit tariff, saying its agreement runs until the end of 2010.

-- With reporting by Henry Meyer in Moscow, Kateryna Choursina in Kiev, Mathew Carr in London, Balazs Penz in Budapest, Katarzyna Klimasinska in Warsaw, Radoslav Tomek in Bratislava, Adam Freeman in Rome and Lenka Ponikelska in Prague. Editors: Guy Collins, Rob Verdonck.

To contact the reporters on this story: Stephen Bierman in Moscow at Sbierman1@bloomberg.netDaryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net

Last Updated: January 2, 2009 06:14 EST