KIEV, Jan. 12 – Russia’s Gazprom on Thursday rejected Ukraine's demand to cut the volume of natural gas supplies this year, edging closer to a standoff that may potentially cause gas supply disruptions in the region.

"The time for discussion on contract volumes in the new year has passed,” Gazprom spokesman Sergei Kupriyanov said in a statement. “And, unfortunately, we must remind our Ukrainian friends again that the terms of gas delivery are determined only by contract, and cannot be changed unilaterally by this or that letter."

Gazprom issued the statement after Naftogaz Ukrayiny said it had requested 10 times over the past six months to reduce gas supply volumes as both companies had failed to agree on lower gas prices.

The increasingly tough rhetoric, used by both parties, signals escalating tensions between Ukraine and Russia only days before January 15, when Kiev and Moscow are supposed to resume talks on lower gas prices.

“Due to high price of natural gas… the Ukrainian economy’s demand for this energy resource has considerably declined,” Naftogaz said. “Naftogaz Ukrayiny, in line with a contract and in due time, has sent about ten letters to Gazprom asking to agree to supplies of 27 billion cubic meters of gas in 2012.”

The developments come days after Energy and Coal Industry Minister Yuriy Boyko said Ukraine had started reducing imports of Russian gas in January. He said Ukraine planned to import 27 billion cu m in 2012, down from about 40 billion cu m in 2011.

This puts Ukraine in a hot spot because the contact, signed by then Prime Minister Yulia Tymoshenko and Russian Prime Minister Vladimir Putin in January 2009, calls for Ukraine importing 52 billion cu m of Russian gas annually through the end of 2019.

The same contract also stipulates that Ukraine cannot import less than 33.3 billion cubic meters of gas annually, because otherwise it would be subject to harsh financial penalties from Gazprom.

Gazprom CEO Alexei Miller, at a meeting with Russian President Dmitry Medvedev in Moscow on Wednesday, said Gazprom was “concerned by unilateral declarations by the Ukrainian partners” about plans to dramatically reduce gas imports from Russia in 2012.

Tymoshenko was sentenced to seven years in prison in October 2011 for abusing authority while negotiating the gas agreement with Russia. She lost appeal last month and is now serving the sentence in a prison in Kharkiv.

She said the sentencing was politically motivated vendetta by her political rival, President Viktor Yanukovych. Yanukovych denied any involvement in the case.

Ukraine and Russia have been locked in difficult gas talks for the past 1.5 years as Kiev has been seeking to lower natural gas prices to between $230 and $250 per 1,000 cubic meters, down from about $400/1,000 cu m in December 2011.

However, as no agreement had been reached by the end of 2011, the gas price rose to $416 per 1,000 cu m in the first quarter of 2012, putting a heavy burden on the Ukrainian economy.

The tough rhetoric used by Kiev and Moscow indicate that the tensions may escalate into a new conflict over natural gas supplies, similar to those in 2006 and 2009 when Russian gas supplies to Europe had been briefly disrupted.

“Kiev and Moscow appear to be at brink of the third gas war,” Yuriy Korolchuk, the head of the Institute for Energy Research, a Kiev-based think tank.

“Ukraine decided to take a risky step that may lead to litigation, most likely in the [international] court of arbitration in Stockholm,” Korolchuk said. “This would mean the beginning of the war.”

“One cannot rule out that the talks, which are due to begin on January 15, will be postponed” or will turn out to be a fruitless exercise for both, Russia and Ukraine, Korolchuk said.

Meanwhile, the rising tensions and the lack of progress in the talks may eventually harm Yanukovych’s political group, the ruling Regions Party, ahead of the October 2012 parliamentary elections.

This makes Ukraine’s position eventually more vulnerable, Korolchuk said.

“This is hardly what President Yanukovych needs today, especially that election race begins and there is catastrophically not enough funds at the disposal of the government to please voters,” Korolchuk said. “Russia understands that perfectly and does not stop putting pressure on Ukraine.” (tl/ez)