Russia's state gas monopoly Gazprom cut all natural gas supplies to Ukraine Thursday after talks broke down over payments for past shipments and a new energy price contract for 2009.

"Gas supplies have been completely cut as of 10:00 a.m. (0700 GMT) today," Gazprom spokesman Sergei Kupriyanov said at a press conference.

Europe concerned

The cut-off naturally aroused the concern of the European Union (EU), which receives one fifth of Russian natural gas through pipelines that cross Ukraine. The EU on Thursday urged Russia and Ukraine to continue talks over their gas delivery dispute.

"All existing commitments to supply and transit must be honored," Czech Deputy Prime Minister Alexandr Vondra, whose country holds the current EU presidency, said in a joint statement with the European Commission.

The EU called on Russia and Ukraine to continue negotiations and reach an outcome so that supplies to Europe are not affected.

"The EU believes we can count on assurances given that gas supplies to it will be unaffected," Andris Piebalgs, the EU commissioner for energy, said.

Meanwhile, both Russia and Ukraine on Thursday reassured their No 1 client, the EU, the row between them will not affect the European market and that they were reliable energy partners.

Gazprom spokesman Kupriyanov said the company will continue to supply European consumers in full. "Export deliveries to Europe have been increased to 326 million cubic meters per day," he said.

One day before the cut-off, Russian Prime Minister Vladimir Putin called European Commission chief Jose Manuel Barroso and "explained the gas supply problems between Russia and Ukraine and the possible consequences for Europe," according to a statement from Brussels.

Ukraine's Prime Minister Yulia Tymoshenko also called Barroso to explain her country's position.

President Viktor Yushchenko and Prime Minister Tymoshenko, in a joint statement made public early on Thursday, said the country has asked the EU to mediate the dispute and promised supplies to Europe would continue "uninterrupted."

There are fears that the cut-off could lead to a repetition of a similar gas crisis as in January 2006, when a dispute between Russia and Ukraine briefly interrupted shipments to many European countries.

Major European consumers of Russian gas have so far reported no immediate impact on supplies. Italy and Poland said they had no problem with their deliveries, and Germany said precautions had already been taken to ensure supplies were not disrupted.

Price row

Gazprom said the cut-off came after the parties failed to agree terms for a 2009 contract to replace the old one which expired at midnight.

Gazprom said Ukraine owes more than 2 billion U.S. dollars for gas it imported. Ukraine said it had transferred 1.5 billion U.S. dollars to an account to cover the debt, but Gazprom said its accounts do not show the payment.

Gazprom had insisted that Ukraine pay 418 dollars per 1,000 cubic meters of gas this year, more than double what it paid in 2008. The Russian energy giant on Wednesday, however, offered to charge Ukraine a reduced price of 250 dollars, which Ukrainian officials said was still too high.

Early on Thursday, Ukraine said in a statement it was prepared to pay 201 dollars per 1,000 cubic meters and wants to raise the gas transit fee.

Later in the day, Oleh Dubina, director of Naftogaz, Ukraine's gas company, said the country was willing to pay 235 dollars, with a transit fee of 1.80 dollars per 1,000 cubic meters per 100 km.

Feeding the price row, is the long-running political tension between the two neighbors.

Political analysts said Russia's anger with Yushchenko, fueled by reports that Ukraine aided Georgia in last August's war with Russia, had played a central role in the present energy crisis.

During the 2006 row, Russia was accused of using its energy resources as a political weapon to punish Ukraine's Western-leaning government, while Ukraine was accused of siphoning off Russian gas intended for Europe from the pinelines.

Russia said its latest gas price offer to Ukraine was much lower than the market price for the rest of Europe, and described it as a "humanitarian" gesture.

Dispute predicted not to last long

Most energy analysts predict the row will be resolved in the coming days as it was bad for both sides -- the Ukrainians face a harsh winter without gas, while Russia cannot not afford to have its gas stuck in the pipelines.

President Yushchenko said on Thursday the gas dispute with Russia will be settled by Jan. 7.

"I think we are close to a compromise and I ask the Russian president, the Russian prime minister and Ukrainian negotiators ... to do all they can so the talks can be completed as soon as possible.

"Our negotiations with the Russian side should be continued within the next two days and completed by Jan. 7," Yushchenko said, in his first statement after Russia's supply decision.

The United States also on Thursday urged Russia and the Ukraine to resolve their dispute.

White House spokesman Gordon Johndroe said both sides should keep in mind the humanitarian implications of any interruption of gas supply in the winter.

(Xinhua News Agency January 2, 2009)