The declaration made on Jan. 13 by the Ukrainian Prime Minister Mykola Azarov that Kiev would not engage in a "gas war" with Russia gave the hope their year-long dispute would end, but there are few signs the situation will change.

The latest round of Ukraine-Russia gas talks between Ukrainian Energy Minister Yuriy Boyko and Alexei Miller, Chief Executive of Russia's gas export monopoly Gazprom, in Moscow on Jan. 17 brought no results. The two neighbors continued to squabble over the price Ukraine will pay for Russian gas and the amount of gas imports to Ukraine.

RISING TENSION

It has become a New Year's tradition that Ukraine and Russia negotiate a gas price for the next 12 months at the beginning of each year.

It seemed in 2011 the two sides had nothing to argue about. After all, Kiev and Moscow have gas contacts for 2009-2019 gas supplies signed by Gazprom and Ukraine's Naftogas in 2009. But still, the conflict is escalating.

On Jan. 11, Boyko said Ukraine planned to reduce its gas imports from Russia to 27 billion cubic meters in 2012 from the contracted volume of 52 billion cubic meters.

Two days later, head of the Ukraine president's administration, Serhiy Liovochkin, said Ukraine had suffered losses worth somewhere between 12 billion and 15 billion U.S. dollars from gas deals with Russia in the past three years.

The Ukrainian premier echoed the official claim on Jan. 15, saying Kiev planned to amend the "shackling" energy deal with Moscow and tried to lower the gas price, which amounted to 416 dollars per 1000 cubic meters in the first quarter of 2012.

Moscow did not leave gas issue unanswered. Gazprom spokesman Sergei Kupriyanov said a lower price and lower imports were impossible under the current supply deal.

RUSSIA'S MAIN AIM

The Kremlin said Kiev had no right to demand new concessions from Gazprom without offering anything in return, because money was involved and there were no "brothers and neighbors" in such cases.

However, Ukrainian analysts said Moscow was not concerned about money, but about resuming its dominance in the former Soviet space and gaining more influence over Ukraine's energy infrastructure.

It seems Moscow has a strong desire to take total control of Ukraine's gas transport system. Russian officials have repeated that selling a stake in the Ukrainian pipeline network could be a condition for lowering prices.

Moreover, Russia exhibited its terms in this issue. It didn't want a triangular consortium with the European Union and Ukraine, but insisted on a 50-50 basis between the two countries, which means equal management of the system.

In addition, Russian Prime Minister Vladimir Putin, who is expected to return to the presidency next year, insisted on Ukraine entering the Customs Union of Russia, Belarus and Kazakhstan.

WAYS OUT OF THE SITUATION

It is widely believed that such a scenario is unacceptable for Kiev. Ukrainian experts said selling a stake of Ukraine's gas transport system or joining the Customs Union would undermine the popularity of President Viktor Yanukovych and his Party ahead of October parliamentary elections.

Most likely, Ukrainian authorities would reject such a change. They would probably look for other ways to reduce gas prices.

On one hand, Ukraine may appeal to the Stockholm arbitration court to try to amend the 2009 gas agreement.

On the other hand, it can completely ruin relations between the two neighbors, and also negatively affect the rating of the current government.

Another way out for Ukraine is to offer the Kremlin a gas consortium after the Russia's presidential election in March. Such a deal would not bring Russia's leadership political losses, and at the same time would be economically beneficial to both parties.

In addition, Ukraine has a fallback. The government has repeatedly stated that Kiev might find alternatives to Russian gas.

Ukraine planned to use coal at its thermal power plants for heating instead of gas to save about six billion cubic meters of gas per year. But how realistic these plans are remains to be seen.