* Ukraine facing unaffordable gas price hike from Jan 1

* Europe risks energy crisis without Russia-Ukraine deal

* No progress in talks as Ukrainians jockey for position

HONG KONG, July 8 (Reuters) - A fresh New Year energy crisis is brewing in Europe as Russia prepares to foist an indigestible price rise onto Ukraine, putting European supplies at risk, a leading expert on the sector warned on Tuesday.

Jonathan Stern, director of gas research at the Oxford Insitute of Energy Studies, said Russia’s pledge to pay Central Asian gas suppliers “international prices” for gas from Jan.1 meant a huge increase in the price Russia demands from Ukraine.

“Essentially they’re going to try to impose a price on Ukraine that Ukraine can’t pay. And I can see that we’re sleepwalking towards the end of the year and that price has got to be agreed, and I think we could see a replay of 2006,” Stern said. “We could have a major blow-up in January again.”

The European Union gets about a quarter of its gas from Russia, and 80 percent of that is piped across Ukrainian territory. In 2006, a dispute between Ukraine and Russia's gas monopoly Gazprom GAZP.MM led to brief supply cuts to the European Union, sparking a barrage of political complaints.

A year later a similar dispute between Russia and Belarus, which accounts for the other 20 percent of Russian transit gas, escalated to the point that the main Russian oil pipeline to Europe was closed for several days during a harsh winter.

“We should have seen it coming in 2006. Now, we can definitely see this coming. This is coming,” Stern said. “If we have a bad winter, there will be uproar.”

Russia holds sway over the region’s gas because the pipelines taking Central Asian gas to Europe run across its territory.

The 2006 crisis was resolved when the two sides agreed to let a middleman, a private firm called RosUkrEnergo, sell Central Asian gas to Ukraine at prices well below the European average, effectively cutting Russia out of the equation.

RosUkrEnergo’s role is due to finish at the end of this year, giving the price talks a further twist.

Russia has begun building export pipelines to bypass Ukraine and avoid similar entanglements in future, but they will not come on stream for around five years, Stern said.

BLAME GAME

He said Russia could be criticised for not making the potential crisis “crystal clear to the rest of the world” but by setting out its plans it had put the ball in Ukraine’s court.

“The Russians are in a colossally strong position. The Ukrainians, like everyone else, heard them tell the Central Asians back in March: ‘You’re getting European prices from January.’ So we all knew...that this is disastrous for Ukraine.”

The price rise, affecting about two-thirds of Ukraine’s gas, could boost the price demanded from Ukraine’s gas buyers from $180 to $400 per 1,000 cubic metres of gas.

“It’s not that it’s unreasonable by European standards, it’s just that they can’t pay it. Ukraine is a gas-based economy, and they’d have to take the most enormous hit,” Stern said.

But Ukraine’s top politicians have failed to grasp the nettle, with Prime Minister Yulia Tymoshenko and President Viktor Yushchenko already manoeuvring to contest a presidential election due at the end of 2009 or early in 2010.

“So this gas thing is about who can be blamed for screwing it up. In this negotiation, she wants to seem tough with the Russians and he wants to seem like he’s the guy who can do a deal with the Russians but she’s screwing it up,” Stern said.

“All we’ve had so far is a lot of nonsense from Tymoshenko about ‘We need a five year transition period, we need a long-term contract.’ No real recognition that, hello, this is it.”

The price talks may also be frosty, since Tymoshenko will sit across the table from Russian Prime Minister Vladimir Putin, pitting the pin-up of Ukraine’s 2004 pro-western “Orange Revolution” against its nemesis, Russia’s president at the time.

As well as the price itself, the two need to agree a transit tariff and a storage tariff, as well as a more workable duration than the annual round of talks leading to a midwinter crisis.

“By the time we get to September, we all get back from our holidays, including them, we’ve got three months - and that’s not long to look at completely revisiting an agreement with a doubling of prices.”

Stern, who was in Hong Kong to launch a book entitled “Natural Gas in Asia”, said one reason that Russia had offered to pay more to Central Asia producers was to lure them away from exporting to China and to Europe via the Iran-Turkey route. (Editing by James Jukwey)