DONETSK, Ukraine (AFX) - Twelve times a day, the tap at the Donetskstal factory's blast furnace No. 2 opens and out plunges a river of fiery, molten metal.
The cast iron is part of the lifeblood of Ukraine's export-oriented economy and the first sign of success in this former Soviet republic's race to wean itself of its costly dependence on Russian natural gas.
This metal is produced using no natural gas, a first not only for Ukraine but also for much of the region. The furnace uses pulverized coal as fuel, a technology that was long ago adopted in the West and Asia but was largely ignored in a part of the world where few saw the point of investing 20 million-25 euros ($25 million-$32 million) to transform gas-guzzling furnaces into more energy-efficient beasts.
But last year, in what many perceived as political punishment for Ukraine's election of a pro-Western president, Moscow cut Ukraine off from the heavily subsidized gas supplies it had enjoyed since the Soviet collapse. Ukraine suddenly saw the price it pays for natural gas nearly double, and could be facing another 40 percent increase next year.
'I would say that we managed to do this right on time,' said Borys Krykunov, technology director at Donetskstal-Metallurgical Factory, which had been using the technology for years, to varying degrees, but only this year managed to complete the full transition from natural gas in production.
The factory in Donetsk, about 730 kilometers (450 miles) southeast of Kiev, is one of several in Ukraine's industrial east, a region where smokestacks and coal mines dot the skyline and a change of wind brings a pungent smell.
'Today, many factories are starting to go down this path,' Krykunov said.
Ukraine is one of the most inefficient energy users in the world, using almost as much natural gas as more advanced economies such as Germany and Britain. For every dollar's worth of industrial production, Ukraine consumes about 2 1/2 times as much energy as its neighbor Poland.
Gobbling up much of that natural gas is the metallurgical sector, which drives Ukraine's economy, accounting for almost 40 percent of all Ukrainian exports. Ukraine ranks first in the world in its use of open-hearth furnaces -- a dinosaur technology that requires huge amounts of gas -- in metal production. Forty percent of Ukraine's steel is produced using that method, compared to 3 percent in other steel-producing nations.
For decades, such waste didn't seem to matter. The Soviet Union was awash in natural gas. After the Soviet collapse, newly independent states such as Ukraine lacked the funds to modernize their industries, and Russia kept the cheap gas flowing, so there was no real incentive.
Then came last year's gas price dispute. Ukraine saw its foreign trade balance slide from a net positive to a deficit of 2.9 million hryvna ($580,000) in the first half of 2006, with the biggest imbalances with its two main energy suppliers, Russia and Turkmenistan.
Officials began talking about the need to reduce gas consumption by as much as 60 percent. Ukrainian industry, led by the metal sector, has been the first to respond, reducing its use of natural gas by more than 1 billion cubic meters compared to a year ago, said Volodymyr Saprykin, an analyst with the Kiev-based Razumkov Center for Political and Economic Studies.
'We definitely saw long-term investment programs being altered,' said Ildar Gazizullin, an expert at Kiev's International Center for Policy Studies. 'I would expect that we will be seeing more modernization and an increase in efficiency in the next few years.'
Donetskstal's furnace No. 2, tucked inside a large, gated compound, is a model. A mix of pulverized coal and hot air are blasted into the towering furnace to produce about 2,300 tons of cast iron every day. In 2005, the furnace required 61 cubic meters of natural gas for every ton of cast iron produced; today, it requires none. The more environmentally friendly technology has also allowed the factory to cut back on the use of coke, which has also been growing more expensive.
Donetskstal plans to bring a second furnace online with the same technology within the next month.
'Coal is cheaper and very efficient, so the cost of metal production is less, of course,' said Ivan Volovnenko, a blast furnace expert at Donetskstal. 'For a time, every blast furnace was blowing natural gas. But about 20 years ago, the Europeans and the Asians stopped using natural gas for the same reason we are now.'
Donetskstal won't say how much it spent on renovations to switch to the new technology, but has been open about sharing the advantages. The company held a seminar for other metallurgical factories to show off its furnace, Krykunov said, and many were sold on it.
The government has floated the idea of offering special incentives to encourage the switch to energy-saving technologies, but so far hasn't offered anything specific. Metal companies, which had enjoyed healthy profit margins, have largely been doing it on their own.
First Deputy Prime Minister Mykola Azarov said one thing the government wouldn't do is put an artificial limit on energy usage.
'Estimates that we may reduce by two times the use of gas in the next five years are absurd,' he said. 'We can't reduce the use of gas because our economy is going to keep developing and we are laying the basis for high economic growth. Gas-using sectors account for 30 percent of our economy.'
Industry just has to become more efficient, officials said.
'The one big stimulus is the increasing price of gas, it's really the big thing -- the one and only incentive that business needs,' Gazizullin said.
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