BELARUS NEWS AND ANALYSIS

DATE:

08/01/2007

Belarus blocks transit of Russian oil

By YURAS KARMANAU

MINSK, Belarus

Belarus has blocked the transit of Russian oil through its territory to European countries including Germany and Poland, news reports said Monday, raising the stakes in a bitter energy dispute between Russia and the neighboring former Soviet nation.

EU energy chief Andris Piebalgs said Monday the cuts pose "no immediate risk" to energy supplies in the EU, but that he was seeking an "urgent and detailed explanation" of the cuts from authorities in Belarus and Russia.

The head of the Russian state pipeline operator Transneft, Simon Vainshtok, accused Belarus of siphoning off Russian oil through the Druzhba, or Friendship, pipeline that was destined for Europe since the weekend.

"On Jan. 6 the Belarusian side, without warning anyone, unilaterally started illegally siphoning off oil from the Druzhba pipeline designed solely for the transportation of oil to consumers in Western Europe," Vainshtok was quoted as saying by Russian news agencies.

The Transneft chief said that Belarus had diverted 79,000 tons of oil so far and called on Minsk to ensure the uninterrupted transit of oil. He added that Russia was doing everything it could to boost oil exports to Europe via other routes.

The 2,500-mile-long pipeline has the capacity to ship over 1.2 million barrels a day to eastern and central Europe and generally works at or close to its full capacity.

Belneftekhim, a large state Belarusian industrial and energy holding company, ordered the suspension of transit of oil through Druzhba to Germany, Poland and Ukraine, the Interfax and ITAR-Tass news agencies quoted unidentified officials from the pipeline's Belarusian section as saying.

Contacted by The Associated Press, officials from Belneftekhim declined to comment.

In Warsaw, the Economics Ministry said Monday that Poland was suffering disruptions in oil deliveries from the pipeline that crosses Belarus, the result of the dispute between Moscow and Minsk.

"This shows us once again that arguments among various countries of the former Soviet Union, between suppliers and transit countries, mean that these deliveries are unreliable from our perspective," Poland's deputy economy minister, Piotr Naimski, told TVN24 television.

The German government confirmed that the pipeline, which supplied two refineries in Germany, had been shut down. "I can confirm the Druzhba pipeline has been closed," said Economic Ministry spokesman Hendrik Luchtmeier. "We are trying to ascertain the reasons."

The impact of a short-term stoppage in Poland and Germany is likely to be minimal, as refineries maintain strategic oil stocks.

In a statement read by his spokesman, Piebalgs said he was trying to find out if Slovakia and countries in southeastern Europe were also affected. He said he was considering calling a special meeting of energy experts from the 27 EU nations to discuss the situation, in case they had to draw on oil stocks.

Piebalgs spokesman Ferran Tarradellas Espuny said Poland had 70 days of reserves and Germany 130 days.

The suspension of oil deliveries comes just days after Belarus and Russia reached a last-ditch agreement on gas prices that avoided a New Year's cutoff of natural gas for Belarusian consumers that threatened a repeat of last year's energy dispute between Moscow and Kiev.

Belarus grudgingly accepted a doubling of the price it pays for imports of Russian natural gas, on which it depends for industry and home heating.

But the two countries are now locked in a dispute over oil duties, with Russia determined to stop Belarus from re-exporting petroleum products made from processing Russian oil bought cheaply.

Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina, who covers the oil and gas industry, said that if the dispute is not contained soon, it could cause overall oil prices to rise as sellers from other markets could take the opportunity to raise their own prices.

"If this situation is not resolved with relative expediency, the market may interpret it as a repeat of the Ukraine situation from last year, which would have bullish energy price implications," Schenker told the AP. "The magnitude of the reaction of energy markets will be directly dependent on how protracted this situation becomes or appears likely to become."

Several countries in the European Union, which depends on Russia for 25 percent of its gas supply, suffered a brief disruption in early 2006 after Moscow suspended gas deliveries to Ukraine because of a pricing dispute. Ukraine and Belarus are the transit route for Russian gas to Europe.

The inefficient, Soviet-style state-dominated economy in Belarus and leader Alexander Lukashenko's popularity has depended heavily on subsidized Russian energy -- but analysts say the Kremlin has grown impatient at supporting his regime while receiving little in return.

Last week, Belarus announced it would charge an import duty of $45 per metric ton of Russian oil shipped to Western Europe in pipelines that cross Belarus. The move followed Russia's imposition of an export duty of $180 a ton on oil sold to Belarus.

Source:

http://www.businessweek.com/ap/financialnews/D8MH37HO0.htm