March 4 (Bloomberg) -- Ukraine warned it may curb OAO Gazprom's natural-gas exports to Europe, risking a repeat of supply disruptions during a dispute two years ago.

Ukraine reserves the right ``to respond appropriately'' to protect domestic consumers should Gazprom follow through on a threat to further reduce supplies today, Kiev-based NAK Naftogaz Ukrainy, the state-run energy company, said in a statement today.

``This represents a very severe escalation of the rhetoric and has moved both sides much closer to the brink of a truly serious disruption,'' said Geoffrey Smith, deputy head of research at Renaissance Capital Ukraine.

Russia's state-run gas exporter said it would deepen gas cuts to Ukraine to 50 percent at 8 p.m. Moscow time today because of an unsettled debt. Gazprom, which relies on Ukraine to ship 80 percent of its gas exports to Europe, cut deliveries to Ukraine by 25 percent yesterday.

The dispute is reminiscent of a standoff in January 2006, when Russia cut supplies to Ukraine completely, causing gas volumes across Europe to fall. Michele Cercone, a spokesman for the European Commission, today called on the countries to reach a solution ``quickly'' and said the European Union doesn't expect a drop in gas imports.

Energy Security

Naftogaz can only guarantee stable supplies to Europe as long as Ukraine's energy security isn't threatened, the company said. Gazprom has ignored Naftogaz's proposals to solve outstanding problems, including a draft agreement the Ukrainian company submitted yesterday, according to the statement.

Gazprom spokesman Sergei Kupriyanov was unavailable for comment when Bloomberg News called. Ukraine should fulfill its contractual obligations to ship gas to Europe in full, he told state television.

Naftogaz said the new proposals are based on an agreement reached in the Kremlin on Feb. 12 by President Viktor Yushchenko and his Russian counterpart, Vladimir Putin. Ukraine's prime minister, Yulia Timoshenko, has since sought to reject the accord.

Gazprom has failed to pay for transit shipments to Europe since December, Ukrainian First Deputy Prime Minister Oleksandr Turchynov said in a statement yesterday on the government Web site. The Moscow-based producer is ``ready to pay at any moment,'' Kupriyanov said in a phone interview earlier today, only Ukraine hasn't presented the company with a bill.

The Russian company claims Ukraine has run up a debt of $600 million since January because it had to ship more expensive Russian gas to compensate for a shortfall in supplies from Central Asia, which experienced an unusually cold winter. Gazprom says Russian gas accounted for a quarter of deliveries to Ukrainian consumers this year.

`Dire Implications'

Gazprom's threatened additional reduction to Ukraine would cut into imports from Central Asian, raising the question of Russia's reliability as a transit country, said James Beadle, portfolio manager at Pilgrim Asset Management in Moscow.

``If Russia is going to cut transit supplies from Central Asia, it's not surprising if Ukraine siphons off the gas it's paying for but not receiving,'' Beadle said. ``If both parties haven't learned the lesson from the last cutoff, the implications are dire.''

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

Last Updated: March 4, 2008 09:26 EST