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Gazprom Hopes No New Ukraine Gas Crisis

Gazprom CEO Aleksei Miller at the annual shareholder's meeting at Gazprom headquarters in Moscow on June 26
MOSCOW (Reuters) -- Russia hopes to avoid a repeat of the January gas dispute with Ukraine that severely cut supplies to Europe, Russia's gas export monopoly has said ahead of talks with Ukraine.

Belarus, which is the second most important route for Russian gas to Europe after Ukraine, also said it would begin paying gas arrears to Russia from July.

European customers watch eagerly talks between Russia and its transit partners, Ukraine and Belarus, as the continent gets a quarter of its gas needs from Siberian fields.

"Let's be confident Ukraine will pay for June gas supplies. Let's hope for the better and let's hope there is no repeat of the crisis, which occurred this January," Gazprom's chief executive Aleksei Miller told the firm's annual general meeting.

He said he would meet the head of Ukraine's state energy firm Naftogaz, Oleh Dubyna, later in the day.

Gazprom, Naftogaz, global banks, and the European Commission will hold talks on June 29 to find a way to help Ukraine fill its gas storage to ensure smooth supplies during the winter.

Miller said he hoped a compromise would be found to help Ukraine raise the funds. The country says it needs $4 billion.

Ukraine, whose economy has suffered a severe shock because of the global crisis, also needs to pay $300 million for supplies in June. Russian officials have repeatedly said they doubt Ukraine is able to pay, but Kyiv has been consistent in finding money since January.

Under a 10-year agreement signed in January that ended a two-week cutoff of supplies to Ukraine and Europe, Ukraine must pay by the seventh day of the month following the imports.

With Belarus the rules are less strict, but Moscow unveiled this month that Minsk owes $230 million and demanded quick repayment.

Previous pricing and debt disputes between Moscow and Minsk have been less acute than with Kyiv, but Russian oil and gas flows via Belarus to the West have nevertheless suffered twice from short disruptions in the past four years.

Belarus' First Deputy Prime Minister Vladimir Semashko said Minsk would repay gas arrears before the end of 2009 and asked Gazprom to postpone the move to prices equal to European export prices minus taxes and shipping costs to 2014 from 2011.

Pipeline Fetish

Miller also told Gazprom's annual shareholders meeting he expected to sign new important deals with Azerbaijan next week.

Russian President Dmitry Medvedev is due to visit Azerbaijan next week, and will likely ask its leadership to pledge vast supplies of natural gas to fill Russian pipelines instead of a rival pipelines to Europe.

Analysts say the Azeri gas could allow Europe to justify the $11 billion construction of a new pipeline, Nabucco, which has not yet signed up a clear source of gas.

Azerbaijan has deals to supply Turkey with around 8 billion cubic meters and wants to more than double production by 2015.

Although Gazprom says it does not see the EU-backed pipeline as a rival, it has stepped up efforts to outpace it with its own new project to southern Europe, South Stream, which it is building together with Italy's energy major ENI.

Many European politicians have expressed concerns that projects such as South Stream will further boost the continent's reliance on gas from Russia.

"Europe's quest for diversification is understandable but it should not become a fetish," said Miller.

He said by diversifying sources of supply Europe may achieve a negative surprise result.

"There will be a lot of diversification but not much of reliability and stability," he said.