* Putin accuses Ukraine of making "strategic error"
* Russia builds undersea pipelines to bypass transit states
* Russia wants Ukraine to join trade zone
* Putin to Brussels for EU summit on Friday
(Adds detail, quotes)
Dec 20 (Reuters) - Russian President Vladimir Putin
criticised Ukraine on Thursday for its failure to strike a
compromise deal on gas supplies, a stance which led to the
last-minute cancellation of a visit to Moscow by President
Viktor Yanukovich this week.
Russia has been pushing for Kiev to cede control of its gas
pipeline network, through which Europe receives around two
thirds of its transit supplies of Siberian gas, holding out the
prospect of a cheaper gas price for Ukraine in return.
But Yanukovich pulled out of gas price talks with Putin at
the last minute on Tuesday, after a Kremlin foreign policy aide
said the Ukrainians had argued they needed more time to prepare
documents the two sides had planned to sign.
Speaking at a major news conference, Putin said Ukraine had
blundered by refusing to lease its gas transportation system to
both Moscow and the European Union.
"Our Ukrainian partners made a very big error, just a
strategic error, a fundamental one," Putin said in response to a
question from a Ukrainian journalist.
"We and the Europeans offered to lease it, without breaking
Ukrainian law, leaving this network in the ownership of the
Putin also called the need for Ukraine's pipeline system
into question at a time when Russia is increasingly seeking to
bypass transit countries by building direct, underwater, links
to Europe and by developing its capacity to export liquefied
"The very existence of Ukrainian gas transportation system
is questionable," he said during the news conference, which
lasted for over 4-1/2 hours.
Europe relies on Russia to cover a quarter of its gas needs,
but over the past decade Moscow has had a series of disputes
with its ex-Soviet neighbours - Ukraine and Belarus - that have
threatened the flow of its gas exports to Europe.
Last year, Russia shipped 150 billion cubic metres (bcm) of
gas to Europe, but volumes have declined this year as buyers
increasingly turn to alternatives such as LNG or cheaper gas on
the spot market.
CLOSER TO THE KREMLIN
Putin is trying to forge closer ties with the states of the
former Soviet Union, whose collapse he has called "the biggest
geopolitical catastrophe of the century".
He has already launched a free-trade zone between Russia,
Belarus and Kazakhstan, known as the Customs Union. Last year,
Belarus received a huge discount on gas - it pays around $170
per 1,000 cubic metres of Russian gas, much lower than the $430
price for Ukraine, which is only an observer of the trade bloc.
Moscow has invited Ukraine to join the Customs Union as part
of a newly proposed gas deal, that would cut the price Ukraine
pays for its energy intensive economy, which is heavily reliant
on exports of steel and grain.
But Kiev, seeking to boost its economic and political ties
with Europe, has so far balked at joining the trade zone as that
would make it more difficult to eventually follow the path of
other ex-communist states to EU membership.
Although Yanukovich has sought to align Ukraine's foreign
policy with that of Russia since becoming president - for
example, by abandoning the goal of joining the NATO alliance -
European integration remains a political priority for Kiev.
Ukraine has cut Russian gas purchases to 27 bcm this year
from about 40 bcm in 2011 to save on its import bill. Talks with
the International Monetary Fund on a credit line have been
delayed because Ukraine has not hiked subsidised gas prices.
Russia is trying to bypass the transit states, having
already commissioned the Nord Stream pipeline under the Baltic
Sea to Germany, capable of pumping 55 bcm of gas per year.
Gas export monopoly Gazprom has just started work
on South Stream, an ambitious project to bypass the transit
nations to the south, that would be able to ship 63 bcm/year
Putin, who travels on Friday to Brussels for a Russia-EU
summit, said Russia will soon overcome its dependence on the gas
He said he did not challenge the legitimacy of a 10-year gas
contract signed with Ukraine in 2009 - over which Ukraine's
former prime minister, Yulia Tymoshenko, was jailed on charges
of abuse of office.
But Putin expressed concern about the upkeep of Ukraine's
gas transportation network, saying its existence and future
viability were open to question.
(Reporting by Alexei Anishchuk; Writing by Vladimir Soldatkin;
Editing by Douglas Busvine and Andrew Osborn)