Settlement in Russian Gas Dispute

Gazprom said Friday it might resume natural gas deliveries to Europe through Ukraine as early as the end of the day. The company said it would resume deliveries if European Union observers were in place to begin monitoring Ukrainian pipelines. Earlier, EU officials said they were close to a breakthrough in the gas dispute with Russia that saw gas deliveries to Europe through Ukrainian transit pipelines cease entirely.

On Thursday night, the Czech Republic, which currently holds the six-month rotating presidency of the European Union, said it had reached a deal with Russian Prime Minister Vladimir Putin over the dispatch of monitors. And on Friday, Gazprom CEO Alexei Miller said that gas would flow to Europe again as soon as a contract had been signed for an international control mission that would monitor the transit of gas through Ukrainian pipelines.

Russia cut off all gas supplies flowing through Ukraine on Wednesday, claiming that the country was illegally siphoning off gas. Russia had previously banned Ukraine from using imported gas on Jan. 1 in a dispute over unpaid bills and an impasse in negotiations over new gas pricing for the country.

"The deployment should lead to the Russian supplies of gas to EU member states being restored," the Czech Republic government said in a statement on behalf of the EU presidency. The EU plans to dispatch monitors to Ukraine on Friday, who would be stationed "everywhere where controls on gas deliveries are necessary," the Czech presidency stated.

On Friday morning, European Commission spokeswoman Pia Ahrenkilde said both Russia and Ukraine had said they would be willing to permit monitors from the other country to monitor the flow of gas out of Russia into Ukraine and from there on to the rest of Europe.

European Commission President Jose Manuel Barroso said Friday he hoped there would be a swift breakthrough in the gas conflict, adding that he would accept the participation of observers from Gazprom as part of the mission.

Speaking on the condition of anonymity, a Czech government minister told the German news agency DPA: "The only thing missing now is gas. The only thing still needed is the decision to pump gas into the pipelines again."

On Thursday, a deal appeared to have been sealed. However, EU Energy Commissioner Andris Piebalgs reported that after first appearing to be willing to go with Brussels' proposal of sending monitors, Gazprom expressed sudden reservations about what it deemed "unacceptable demands." Piebalgs said Gazprom CEO Alexei Miller had insisted that Russian observers also be sent to Ukraine. Earlier, Kiev had reached an agreement with the European Commission for EU monitors to be stationed at crucial points along the pipelines.

A Roller Coaster Ride

With negotiations taking a roller coaster ride of twists and turns on Thursday, French President Nicolas Sarkozy called on Russia to adhere to the gas delivery contracts it has with European countries. "The Russian-Ukrainian dispute is a bilateral matter," he said at a joint press conference with German Chancellor Angela Merkel in Paris. Merkel said Germany was also prepared to make experts available for a monitoring mission. She also said Europe must review its gas reserves and consider the construction of new facilities to increase storage capacity. The EU has called for a crisis meeting this coming Monday of energy ministers from its 27 member states.

Sparring between Moscow and Kiev over the gas conflict continued uninterrupted. On Thursday night, Russian Prime Minister Vladimir Putin reiterated Moscow's claim that Ukraine had cut off gas supplies to the West, saying Kiev's "criminal leadership" was responsible for "turning off" gas supplies.

Once Gazprom turns the valve back on, it could take up to 36 hours for gas traveling across Ukraine to reach its European neighbors. One-quarter of Europe's natural gas comes from Russia, and 80 percent of those supplies are carried through transit pipelines that traverse Ukraine.

The sudden gas stoppage on Wednesday forced many European countries to increase their imports from other suppliers or tap existing reserves to make up for the massive shortfall.

Schröder Lashes Back at Critics

Meanwhile, former German Chancellor Gerhard Schröder, who sits on the board of Nordstream, a Gazprom-owned firm that is building a controversial Baltic Sea pipeline that will pump gas directly from Russia to Europe, defended himself from criticism stemming from the head of one of Germany's governing conservative parties claiming that he wasn't doing anything to help stop the conflict, despite his close friendship to Putin.

Schröder told the German financial daily Handelsblatt that he though it was legitimate for Russia to demand a price increase for gas to Ukraine, "especially since the price Russia is offering is below the world market price."

However, he also stated: "Customers in Europe should not be among those suffering from this dispute. I emphasized that in my discussions in Russia, but also publicly in St. Petersburg. That's why accusations that I have kept silent in this conflict are nonsense."

The former chancellor also proposed that a private international consortium take over Ukraine's transit pipelines from state-owned Naftogaz. The consortium would include companies from countries that produce, provide transit for and consume natural gas. "That would also secure the necessary investments needed for Ukraine's dilapidated network and pumpstations," he said.

Before it's here, it's on the Bloomberg Terminal.