In a letter released late on Friday, European Council President Herman Van Rompuy said youth unemployment was one of the most pressing issues for the 27-member European Union.

“The June European Council will be an opportunity to mobilize efforts at all levels around one shared objective: to get motivated young people back to work or education,” he said, referring to upcoming summit talks.

“We must give them the guarantee that they will be either in training, further education or employment within four months of leaving school.”

EU ministers agreed earlier this year on steps to ensure people under the age of 25 receive an offer of work or work-related training as part of a 6 billion euro ($8 billion)initiative on youth unemployment in the worst-hit corners of Europe.

Social unrest is rumbling and research has warned of “lost generations” of unemployed people and their children.

Van Rompuy said in his public letter preparatory work needed to be carried out, so schemes to help young people could be “fully operational” by January next year.

In Germany, policy-makers have in private expressed a concern about a lack of urgency and have thrown their weight behind bilateral deals to solve the problem.

The dominant EU state says it is experienced in dealing with unemployment and is hosting talks on July 3 in Berlin to follow up on the June EU talks.

It thinks the 6 billion euros of EU money should be spent upfront, rather over the seven years of the next multi-annual budget (2014-2020). It also has said some funds could pay for the early retirement of older people to make way for the next generation.

Van Rompuy’s letter notes unemployment levels vary greatly across the European Union, underlining the case for sharing best practice.

For the European Union as a whole, unemployment is 10.9 percent and in the 17-member euro zone, it reached a record 12.1 percent of the working population in March, the latest public figures. [ID:nL6N0DH20A] In the United States it is 7.6 percent.

Among EU member states, the lowest unemployment rates are in Austria (4.7 percent), Germany (5.4 percent) and Luxembourg (5.7 percent), while the highest are in Greece (27.2 percent), Spain (26.7 percent) and Portugal (17.5 percent), according to Eurostat data issued at the end of April.

The EU jobs crisis has stoked debate on how tough economic policies need to be to fix the EU economy.($1 = 0.7734 euros)

(Additional reporting by Luke Baker; editing by Ron Askew)

Arriving at the summit, British Prime Minister David
Cameron, whose government is advancing plans to exploit his
country’s shale gas deposits, said Europe could not afford to be
left behind as the world scrambles to develop the resource.

He drew a comparison with the United States, where years of
extraction, using a much-criticised process of hydraulic
‘fracking’, has delivered record-low gas prices for consumers.

“We mustn’t be left behind in the global race,” Cameron told
reporters. “Europe has 75 percent of the United States’s shale
resources, but America is drilling 100 times faster than
Europe.”

For the European Union, there is no broad-based agreement on
how shale gas should be developed, with some of the EU’s 27
member states completely opposed to any exploration, others in
two minds and a few fully committed to it.

At the same time, the European Commission says environmental
standards must be maintained, and potential investors in shale
gas have to consider Europe’s more complex land-ownership and
mineral extraction laws.

Other issues include the greater depth of EU shale gas
reserves compared with the United States, which can increase
drilling costs by a factor of three, analysts say.

Of EU nations, the eastern states of Poland and Lithuania
are among the keenest to cut their reliance on imports of
natural gas from Russia by developing shale gas of their own or
importing it in liquid form from the United States.

While gas prices in the European Union are roughly four
times higher than in the United States, analysts say U.S.
prices will inevitably rise as production costs can exceed
income from the gas.

Rex Tillerson, CEO of the largest U.S. natural gas producer,
Exxon Mobil Corp, said: “We are all losing our shirts
today,” when talking about natural gas prices, a comment that
hints at the double-edged nature of the asset.

European Council President Herman Van Rompuy said Europe
needed to tap all resources, but it was up to individual member
states to make their own energy choices.

“Yes, this includes shale gas which could become part of the
energy mix for some member states, perhaps less for others,” Van
Rompuy said. “Soon Europe could be the only continent to still
depend on imported energy. Households feel the weight of high
prices, industry finds it hard to compete with foreign firms.”

Apart from shale gas, summit documents also focus on
completing the single European energy market.

In theory, better cross-border connections can help to lower
prices and increase security of supply, but more than half a
century after the founding of the European Union, the single
energy market is still incomplete.

For many, shale gas is far more unrealistic. Green
politicians and environmental campaigners say it is a dangerous
distraction from the pursuit of carbon-free energy and energy
efficiency, which they say is the best way to free the European
Union from expensive fossil fuel imports.

(Additional reporting by Ethan Bilby, Adrian Croft, Martin
Santa; editing by James Jukwey)

The 27-nation bloc finds itself looking on with envy as its
biggest economic rival, the United States, exploits vast
reserves of shale gas, delivering drastically reduced fuel
costs.

While Europe has shale plans of its own, there is as yet no
unified EU policy. The reserves will be far harder to extract
than in the United States and the final cost to consumers is
likely to be substantially higher so Europe will not be able to
free itself of dependence on gas imports from Russia any time
soon.

“Already in 2012, industry gas prices were four times lower
in the U.S. than in Europe,” Commission President Jose Manuel
Barroso said in a speech on Tuesday. “For electricity prices,
the EU is almost twice as expensive as the U.S. So this is above
all a debate about our energy security and our competitiveness.”

Draft documents prepared for the five-hour summit, which
will begin Wednesday afternoon in Brussels, list energy costs as
a prime concern in the EU quest for competitiveness, jobs and
growth.

Apart from completing the single energy market, proposed
solutions include developing “indigenous energy resources” -
Commission code for shale gas, as well as green sources.

Ireland, which as the rotating presidency of the EU leads
debate until the end of June, said the challenge is to combine
the bloc’s long-term carbon-cutting goals with affordability.

“There are member states who under no circumstances want
their eye taken off the decarbonisation agenda,” Irish Energy
Minister Pat Rabbitte told reporters.

“It (shale gas) will be more problematic in Europe than it
has proven be in the United States. There are all kinds of
cultural and other reasons for that.”

OVERLY HOPEFUL?

Lithuania, which takes over as EU president on July 1, is
among the EU member states most dependent on imported Russian
gas for which it pays far more than the EU average.

Its energy minister, Jaroslav Neverovic, is looking for
opportunities to develop Lithuanian shale gas, while also hoping
that the United States will eventually export shale gas to
Europe cheaply.

For the European Union, dependent on Russia for around a
quarter of its natural gas, such imports could improve its
negotiating hand when agreeing supply contracts.

Yet Russia is unconvinced, saying shale gas is unrealistic
for Europe, in part because of ownership rules, and would
require more expense than long-term contracts indexed to oil.

“Russia offers a perfect bargain,” Sergei Komlev, head of
contracts structuring at Gazprom, said in one of a series of
Reuters interviews on gas, estimating that European shale gas
will be three times more costly than in the U.S.

The European Commission says it is up to member states to
decide which forms of energy they choose to use. But it has
rules to ensure extraction does not damage the environment and
it is working on framework for the shale gas industry.

“For the short term, the only real answer is energy
efficiency,” Environment Commissioner Janez Potocnik said in
Reuters’ series of themed interviews.

The green community largely agrees. Luxembourg green member
of the European Parliament Claude Turmes, who led last year’s
parliamentary debate on a new Energy Efficiency Directive to
encourage energy saving, says the shale gas debate is an
instance of the European Union “following blindly” a myth.

Energy saving through measures such as better building is a
more certain route to cutting the EU’s huge fossil fuel bill.

“This (energy) trade deficit has reached 400 billion euros,”
Turmes said, citing official figures. “The single biggest
transfer of wealth from one economy to other economies in the
world.”

Energy CEOs are also frustrated that EU leaders are focused
on the wrong thing, with a fixation on comparative costs when
the energy business needs vision and long-term investment if it
is to deliver reliable and affordable supply.

A group of eight, including the bosses of E.ON
and ENI, has written to EU leaders and some are
debating their own plan of action to strengthen energy policy.

(Additional reporting by Ethan Bilby, Geert de Clercq, Karolin
Schaps, editing by William Hardy)

Europe has hopes Eastern Mediterranean gas reserves can help
to diversify its supply sources, as well as easing Cyprus’s
economic pain and potentially playing a role in healing the rift
between the northern and southern parts of the island.

Charles Ellinas, executive chairman of the Cyprus National
Hydrocarbons Company, said authorities would also push ahead
with plans to develop a liquefaction plant to handle exports
expected from 2020.

But gas from the region also comes with Middle East
complications since the fields are split with Israel and
Lebanon, two countries technically at war, and Turkey objects to
ethnically split Cyprus tapping offshore reserves.

“I am very confident that Cyprus can provide Europe with 30
to 40 percent of its additional gas needs by 2025,” Ellinas told
Reuters as part of a series of interviews on the gas market.

Europe’s gas demand is slightly below 500 million cubic
metres (bcm) a year, and Ellinas estimated the increase in
demand by then to be around 100 billion cubic metres a year,
although many analysts say demand will grow much more slowly.

The U.S. Geological Survey estimates a mean 122 trillion
cubic feet (3.5 trillion cubic metres) of recoverable gas lie in
the eastern Mediterranean basin, as well as 1.7 billion barrels
of recoverable oil.

Much of it lies trapped beneath the sea bed between Cyprus,
Israel and Lebanon, including two vast gas fields off Israel
which are some the largest discovered in the past decade.

So far an estimated 200 bcm of natural gas worth $80 billion
at current prices have been discovered in the Aphrodite gas
field in Cypriot waters, but research suggests that developing
the field would require large amounts of upfront investment into
a project that may not deliver high returns.

Analysts say gas prices could fall after 2015 when a wave of
new supplies become available in the United States, Australia
and Africa. (link.reuters.com/gyz76t)

Consultants estimate the first phase of the LNG facility
including infrastructure and one delivery chain will cost $6
billion. One option under consideration for funding the project
was to use the LNG sales agreements as collateral.

“Given that the ownership of gas is, roughly speaking,
two-thirds Cyprus’s and one third to oil companies, these LNG
sales agreements are worth a large amount of money which can
provide security for loans,” Ellinas said.

TURKEY, RUSSIA

Ellinas said there was a chance developing the gas could
lead Turkey and Cyprus to bridge their 40-year differences.

“One of the reasons Turkey has been putting so much pressure
on everybody is because of their own needs (for gas),” he said.

The gas windfall is one economic positive for Cyprus, where
the terms of an EU and International Monetary Fund bailout will
see the island’s 17.5 billion euro ($22.51 billion) economy
shrink by more than 8 percent this year.

Despite its close business ties with Cyprus in other
sectors, Russia does not have any involvement in the island’s
attempts to develop its offshore energy sources.

“The Eastern Mediterranean is a secure, independent supply
corridor. It’s probably best if Russia is not involved,” Ellinas
said when asked about Russian involvement.

Cyprus has signed production sharing contracts with U.S.
based Noble Energy, France’s Total, Italy’s
ENI and South Korea’s KoGas.

Ellinas said Noble was scheduled to start appraisal drilling
in June to verify initial findings of between 5 and 8 trillion
cubic feet (tcf) of gas. Total was scheduled to start an
exploratory drill in 2014, and ENI by 2015 or possibly earlier.

“I have seen the estimates of ENI and Total about how much
gas there is in their blocks and it is quite significant,” he
said. Asked if the estimates were on a par with those of Noble,
he said: “The short answer is yes.”

Ellinas, who previously held senior positions at energy firm
Mott MacDonald, said the construction of a pipeline to channel
the gas to markets was impractical because of sea depths, but
said that could not be ruled out in the future.

For now, the island will move ahead with plans to construct
an LNG terminal, which will liquefy gas and ship it.

The terminal, which is expected to be built at Vassilikos,
on the island’s south, could handle gas fom Israel and Lebanon
as well as Cyprus, he said.

(Additional reporting by Luke Baker, Karolin Schaps and Geert
de Clercq; Editing by Henning Gloystein and William Hardy)

It gives a glimpse into the intensity of the lobbying in the
dispute, which helped persuade the European Union to freeze a
law on regulating international aviation emissions.

China partly lifted a blockade on 45 long-haul A330 jet
orders during a visit by French President Francois Hollande last
month.

Behind the scenes, Airbus claimed partial credit for the EU
climb-down and cheered what its chief executive described to
Beijing as “joint efforts” to limit damage to Chinese airlines.

Writing to China’s top aviation official shortly after the
EU back-pedalled on its Emissions Trading Scheme last November,
Fabrice Bregier said Airbus had been “very active” in
supporting China’s preference for a broader global system.

“Through our joint efforts, we have managed to ensure that
Chinese airlines are not unfairly impacted by the scheme as
previously planned,” Chief Executive Fabrice Bregier said.

“I hope we at Airbus have been able to clearly demonstrate
our strong support to Chinese aviation.”

Airbus, which also got backing from European leaders, says
the blocked orders alone put 2,000 jobs at risk.

“Since I became president of Airbus in June (2012), I have
made this issue one of the top priorities for the company,”
Bregier wrote to Li Jiaxiang, the government official in charge
of the Civil Aviation Administration of China (CAAC).

A spokesman for Airbus declined to comment on the letter but
reiterated that the company, a subsidiary of EADS,
welcomed the EU’s decision to pause the scheme for a year.

Bregier signed the two-page letter on Nov. 16, four days
after EU Climate Commissioner Connie Hedegaard agreed to “stop
the clock” for a year on plans to make all airlines using EU
airports pay for their emissions through a trading scheme.

The proposal unleashed a volley of international criticism
and China – which viewed it as a breach of sovereignty – froze
orders for aircraft worth up to $230 million each.

Bregier urged China to respond to the European Union’s
decision by swiftly granting approvals for all 45 aircraft.

While Beijing approved 18 orders worth $4 billion, more
valuable deals remain on hold as China awaits the outcome of
international talks on the problem of managing borderless
emissions without infringing sovereignty.

PRESSURE TO ORDER PARTS

Bregier’s letter sheds light on frantic efforts to unblock
the orders as Airbus reached the deadline for ordering parts for
the jets. According to his letter, the first aircraft was
tentatively scheduled to be delivered in the summer of 2013.

Industry sources say a golden rule of the aerospace industry
is that planes are never built without a firm order and deposit.

However, the schedule suggests Airbus may have been willing
to show some flexibility, given China’s role as the world’s
fastest-growing aviation market and a strategic trade partner.

Longest-lead-time components are ordered around a year in
advance, meaning that if the planes are indeed to be delivered
this summer, some parts would have been ordered last year.

The letter also gives the first available breakdown of the
A330 orders, details of which have mostly been kept secret
pending final approval from the Chinese government.

They include 10 aircraft for Air China, 10 for
Hainan Airlines, 10 for China Southern
and 15 for China Eastern. The letter said first
deliveries were tentatively scheduled for mid-2013.

Airbus has not said which of these are included in the
approvals for 18 aircraft announced on April 25.

It is not the first time high-profile plane orders have
become swept up in trade tensions between China and Europe or
the United States, home to Airbus’s arch-rival Boeing.

Supported by India and the United States, China objected to
the EU airlines plan on the grounds that it based charges on the
whole trip, including China’s jealously protected airspace.

The European Union says it was forced to act after more than
a decade of inaction by the international community.

For internal EU flights the EU scheme remains in place and
the European Union says it will re-impose the scheme for all
flights using EU airports if global talks do not progress.

In practice, diplomats say that places the onus on the
United Nations’ International Civil Aviation Organization to
reach a breakthrough during its general assembly from Sept. 24.

The absence of a deal would raise the prospect of further
deadlock over Airbus orders.

Aviation executives are expected to tackle the issue on
Monday in Montreal, home to ICAO, where they are attending an
Airbus-sponsored environment workshop.

(Additional reporting by Tim Hepher; Editing by Louise Heavens)

It gives a glimpse into the intensity of the lobbying in the dispute, which helped persuade the European Union to freeze a law on regulating international aviation emissions.

China partly lifted a blockade on 45 long-haul A330 jet orders during a visit by French President Francois Hollande last month.

Behind the scenes, Airbus claimed partial credit for the EU climb-down and cheered what its chief executive described to Beijing as “joint efforts” to limit damage to Chinese airlines.

Writing to China’s top aviation official shortly after the EU back-pedaled on its Emissions Trading Scheme last November, Fabrice Bregier said Airbus had been “very active” in supporting China’s preference for a broader global system.

“Through our joint efforts, we have managed to ensure that Chinese airlines are not unfairly impacted by the scheme as previously planned,” Chief Executive Fabrice Bregier said.

“I hope we at Airbus have been able to clearly demonstrate our strong support to Chinese aviation.”

Airbus, which also got backing from European leaders, says the blocked orders alone put 2,000 jobs at risk.

“Since I became president of Airbus in June (2012), I have made this issue one of the top priorities for the company,” Bregier wrote to Li Jiaxiang, the government official in charge of the Civil Aviation Administration of China (CAAC).

A spokesman for Airbus declined to comment on the letter but reiterated that the company, a subsidiary of EADS, welcomed the EU’s decision to pause the scheme for a year.

Bregier signed the two-page letter on November 16, four days after EU Climate Commissioner Connie Hedegaard agreed to “stop the clock” for a year on plans to make all airlines using EU airports pay for their emissions through a trading scheme.

The proposal unleashed a volley of international criticism and China – which viewed it as a breach of sovereignty – froze orders for aircraft worth up to $230 million each.

Bregier urged China to respond to the European Union’s decision by swiftly granting approvals for all 45 aircraft.

While Beijing approved 18 orders worth $4 billion, more valuable deals remain on hold as China awaits the outcome of international talks on the problem of managing borderless emissions without infringing sovereignty.

PRESSURE TO ORDER PARTS

Bregier’s letter sheds light on frantic efforts to unblock the orders as Airbus reached the deadline for ordering parts for the jets. According to his letter, the first aircraft was tentatively scheduled to be delivered in the summer of 2013.

Industry sources say a golden rule of the aerospace industry is that planes are never built without a firm order and deposit.

However, the schedule suggests Airbus may have been willing to show some flexibility, given China’s role as the world’s fastest-growing aviation market and a strategic trade partner.

Longest-lead-time components are ordered around a year in advance, meaning that if the planes are indeed to be delivered this summer, some parts would have been ordered last year.

The letter also gives the first available breakdown of the A330 orders, details of which have mostly been kept secret pending final approval from the Chinese government.

They include 10 aircraft for Air China, 10 for Hainan Airlines, 10 for China Southern and 15 for China Eastern. The letter said first deliveries were tentatively scheduled for mid-2013.

Airbus has not said which of these are included in the approvals for 18 aircraft announced on April 25.

It is not the first time high-profile plane orders have become swept up in trade tensions between China and Europe or the United States, home to Airbus’s arch-rival Boeing.

Supported by India and the United States, China objected to the EU airlines plan on the grounds that it based charges on the whole trip, including China’s jealously protected airspace.

The European Union says it was forced to act after more than a decade of inaction by the international community.

For internal EU flights the EU scheme remains in place and the European Union says it will re-impose the scheme for all flights using EU airports if global talks do not progress.

In practice, diplomats say that places the onus on the United Nations’ International Civil Aviation Organization to reach a breakthrough during its general assembly from September 24.

The absence of a deal would raise the prospect of further deadlock over Airbus orders.

Aviation executives are expected to tackle the issue on Monday in Montreal, home to ICAO, where they are attending an Airbus-sponsored environment workshop.

(Additional reporting by Tim Hepher; Editing by Louise Heavens)

The impact of energy costs on the competitiveness of EU
industry has shot up the political agenda following a shale gas
revolution in the United States, which has delivered a glut of
cheap natural gas to aid the U.S. economy.

A draft action plan drawn up by Commission officials for the
steel industry asks member states to consider measures “such as
the temporary freeze of taxes and levies for a period of two
years”, the sources told Reuters on condition of anonymity.

It also suggests they might reduce or exempt energy
intensive industry from “renewable and network levies and
tariffs”, they said, adding it found that at national level,
taxes and levies for renewable subsidies could be very high.

The plan is not expected to be made public before June and
the Commission does not comment on unpublished documents.

EU leaders are meanwhile set to debate how to limit the
impact of energy costs at a summit on May 22.

The issue is divisive. Environment campaigners and some in
the European Commission argue strongly that investment now, even
if it pushes up short-term costs, is vital to the long-term
competitiveness of Europe and keeping its industries at the
forefront of innovation.

But the business community has said not enough attention has
been paid to the impact of energy costs on competitiveness.

Debate has been particularly fierce in Germany, ahead of
elections this year, as renewable subsidies have taken the blame
for driving up energy bills.

Arguments from the EU energy intensive industry that it is
disadvantaged compared with the rest of the world, where
environmental standards are lower or energy is cheaper, has
played a big part in blocking a Commission plan to boost the
price of the EU Emissions Trading Scheme (ETS).

The world’s biggest carbon market, the ETS is meant to be
central to EU efforts to shift towards a low carbon economy, but
it has collapsed to record low levels under a glut of pollution
permits generated by recession and weak demand.

Energy intensive industry says driving up the ETS would
punish it further in difficult times and could drive it out of
Europe. It is expected to oppose high levels of ambition as the
European Union opens a debate on 2030 climate and energy policy
to follow on from 2020 targets.

The draft document says more advanced industrial processes
and equipment could be financed from cash from auctioning ETS
allowances.

Attempts to use auction revenues to fund technology to
sequester carbon emissions (carbon capture and storage) failed
last year, but the Commission is trying again.

(Editing by James Jukwey)

The plan is part of a debate on how to cut carbon emissions
and improve the fuel efficiency of Europe’s vehicles. It would
only become law if approved by EU member states.

Under Tuesday’s proposal, vehicle makers would have to fit
all new vans sold in the European Union with devices to restrict
their speed from Jan. 1 next year.

The environment committee members also voted on rules to
implement a 147 grams per km (g/km) carbon dioxide emission
limit as an average for all EU new vans from 2020 and put
forward a maximum range of 105 g/km to 120 g/km from 2025.

German liberal politician Holger Krahmer, who has been
leading the debate on vans in the European Parliament, welcomed
confirmation of the 147 g/km target, but opposed the speed
restriction, saying road traffic rules were a matter for
individual member states.

The European Automobile Manufacturer’s Association (ACEA) -
which represents makers including Daimler, Ford of
Europe, General Motors Europe and Renault Group
– said the 147 g/km goal was extremely ambitious and
could only be achieved with hybrid vehicle technology.

It called, in a statement, for “more effective” use of
loopholes called supercredits, which allow manufacturers to
carry on making powerful, polluting vehicles if they also
produce very low emission vehicles such as electric vans and
cars.

The original proposals from the executive European
Commission said supercredits could spur innovation, but too
generous an allocation would undermine the effectiveness of the
law to increase fuel efficiency and decrease emissions.

Environmental campaigners say the 147-gram target for vans
is not ambitious enough. They say it can be easily met through
measures such as lighter materials and more streamlining and is
less ambitious than proposals for cars.

For cars, the parliament has backed rules to enforce a goal
of 95 g/km, which campaign group Transport & Environment (T&E)
said translated into 118 g/km for vans, taking account their
larger size and loads they have to carry.

While criticising what it saw as a lack of ambition, T&E
welcomed to proposal to cap speed, saying vans were the only
commercial vehicles that are not yet speed-limited.

It cited consumer surveys in Britain, Germany, Italy and the
Netherlands that show a majority of citizens support the idea.

The parliament will now start negotiating a legal text with
European ministers and the Commission, the bloc’s executive.
Ireland, holder of the rotating EU presidency, has said it hopes
for a deal on vehicle emissions before the end of June.

European industry says it is disadvantaged because of the
price it pays for energy compared with the United States, where
the shale gas revolution has drastically lowered costs.

The document ahead of the May 22 EU summit, which has energy
and taxation on the agenda, calls for examination of the impact
of energy prices and costs and action to limit the effects.

One option is developing the European Union’s own shale gas
resources, although this is not mentioned directly. Instead, the
draft refers to safe and sustainable development of “indigenous
sources of energy”.

Europe’s very different geography and land ownership would
make it hard for the European Union to rival the United States
in shale gas, but the executive European Commission is working
on a framework to guide prospectors.

The leaders are expected to urge the Commission to analyse
energy prices and costs in member states “with a particular
focus on the EU’s competitiveness” against global rivals.

The draft also points to massive investment costs in
boosting power generation and networks as likely to drive up
energy prices.

Arguments over energy costs have featured prominently in
political debate ahead of German elections and played a part in
blocking a Commission proposal to boost carbon prices on the EU
market.

The Emissions Trading Scheme (ETS), where carbon prices have
sunk to record lows, is not on the draft agenda, but it could be
debated on the sidelines of the summit, EU sources have said.

Efforts to repair that market are also a focus of attention
for the European Parliament.

Other items on the summit agenda include completion of the
internal energy market, which the European Union had hoped would
harmonise power and gas supplies across the 27-member union by
2014. That deadline is likely to be missed.

EU leaders also expected to support laws intended to break
up energy monopolies by prising apart ownership of supplies and
the infrastructure used for their delivery.

The rules aim to ensure distribution of supplies as
competitively and efficiently as possible to lower costs, but
they have infuriated the bloc’s leading gas supplier Russia.

(Editing by William Hardy)

The European Union is pressing for agreements to be sealed
with Ukraine by the end of this year as both parties seek to
dilute Russia’s dominance as a gas supplier.

But Kiev is torn between EU cooperation and Russia’s promise
to cut its gas bills in return for control of its pipelines.

At the end of April, Ukraine’s government asked parliament
to lift a ban on the privatisation of state energy firm
Naftogaz, which includes pipelines that pump Russian gas to
Europe. That could allow Kiev to sell or lease
them to Russia’s gas export monopoly Gazprom.

Ukraine’s Energy Minister Eduard Stavytsky and EU Energy
Commissioner Guenther Oettinger raised the possibility of a
three-way relationship at talks in Brussels on Friday.

“Ukraine is really trying to consider its geopolitical
situation and to establish a gas hub, so we will be able to do
spot purchases in central Europe,” Stavytsky told reporters.

Guenther Oettinger said he believed EU firms were willing to
buy into Ukraine infrastructure. He did not name potential
investors, but energy firms were at the closed-door talks,
including ExxonMobil and Royal Dutch Shell.
None was immediately available to comment.

Stavytsky said $550 million was needed to modernise
Ukraine’s infrastructure, of which Naftogaz could provide $240
million, while the rest would come from loans.

Since late last year, technology allowing pipeline flows to
be reversed has allowed Ukraine to import some gas from EU
nations, including Hungary and from Germany via Poland. In
addition, Slovakia is seeking to develop reverse flow
technology, with a test expected this month, Oettinger said.

As the European Commission seeks to expand its internal
energy market, it has also been working to develop Ukraine’s
extensive gas storage, which could ease any supply shortages.

Ukraine already has storage of 31 billion cubic metres (bcm)
and Stavytsky said it was seeking to increase it to 50 bcm,
compared with 95 bcm for the European Union as a whole.

In the past, gas flows to the European Union have been
disrupted because of Ukraine’s quarrels with Russia over how
much it has to pay for its supplies.

The European Union depends on Russia for about a quarter of
its gas, more than 60 percent of which passes through Ukraine.

All parties are seeking to broaden their options and Russia
has built pipelines to bypass Ukraine.

It wants Ukraine to join its Customs Union, while Ukraine
and the European Union are debating a free trade and political
association deal.

Theoretically, it is to be signed later this year, but the
European Union said it is conditional on improved human rights
and addressing “politically motivated convictions,” a reference
to the jailing of former Prime Minister Yulia Tymoshenko,
President Viktor Yanukovich’s arch rival.

(Editing by James Jukwey)