BELARUS NEWS AND ANALYSIS

DATE:

03/01/2009

Gazprom Sends Gas via Belarus as EU Urges End to Ukraine Spat

By Stephen Bierman and Henry Meyer

Jan. 3 (Bloomberg) -- OAO Gazprom boosted natural-gas supplies to Europe via Belarus as the European Union urged Russia's state-run exporter of the fuel and Ukraine to resolve their deepening dispute over pricing.

"The European Union calls for an urgent solution to the commercial dispute on gas supplies from the Russian Federation to Ukraine, and for an immediate resumption of full deliveries of gas to the EU member states," the Council of the European Union said in a statement late yesterday.

Gazprom said yesterday it increased shipments via Belarus after it cut gas to Ukraine Jan. 1 following the collapse of talks on the price of deliveries for 2009 and transit fees for gas from Russia to Europe. Russia supplies a quarter of Europe's gas, 80 percent of which is transported through Ukraine.

The cutoff echoed a similar dispute in 2006 that disrupted supplies to Europe. Gazprom yesterday accused Ukraine of siphoning fuel in transit, which NAK Naftogaz Ukrainy, Ukraine's state-run energy company, said today was a "provocation." The EU called for supply and transit commitments to be honored "under all circumstances."

"The Belarus option is certainly viable and they could put some of the gas through Belarus," said Jonathan Stern, director of gas research at Oxford Energy. "But it certainly is not the solution. There is some spare capacity within the Belarus corridor, but it is probably within the order of 10 percent from Ukraine capacity."

A Ukrainian delegation led by Energy Minister Yuriy Prodan began a tour of EU capitals, visiting Prague and Bratislava to hold talks. Gazprom Deputy Chief Executive Officer Alexander Medvedev is already in Prague, Sergei Kupriyanov, a spokesman for the company, said in a text message today.

Offer Withdrawn

Gazprom on Jan. 1 withdrew an offer to sell Ukraine gas at $250 per 1,000 cubic meters as Ukraine, which relies on Russian gas for 70 percent of its needs, sought a cheaper rate. Ukraine must now pay a European market price of $418, Gazprom said.

Ukraine's political leadership, grappling with a financial crisis that has forced it to seek a $16.4 billion International Monetary Fund bailout, said $201 would be a fair price. Naftogaz later revised that figure to $235 per 1,000 cubic meters.

The main consumers of Russian gas transported through Ukraine said they were so far seeing little effect and were prepared for any drop. Slovakia and the Czech Republic yesterday said their supplies have so far been normal. Italy said it can meet any short-term demand from storage and could, if necessary, increase supplies from Algeria.

Supply Irregularities

Polskie Gornictwo Naftowe I Gazownictwo SA, Poland's largest gas distributor, said Russian gas supplies via Ukraine were down and that deliveries via Belarus had risen to cover them. Poland reported a 6 percent reduction in shipments from Ukraine, the European Commission, the EU's executive arm, said yesterday.

Hungary reported a reduction of 10 million cubic meters out of a contracted volume of 42 million cubic meters a day, according to the European Commission, which commented on "irregularities" to the two member states of the 27-nation bloc. Hungary saw deliveries fall as much as 35 percent in the 2006 dispute.

"The long-term implication is that it will encourage Europe to diversify its supply," Dieter Helm, professor of energy policy at Oxford University, said yesterday. "Supply in Europe isn't being threatened, at least not for the coming days. But give it a week and that may change."

Deliveries of gas from Russia to Romania have dropped by 30 percent since the start of the dispute, Agence France-Presse reported. The country is receiving 7 million cubic meters, down from its usual 10 million cubic meters, the news service cited Ioan Rus, director of pipeline operator Transgaz, as saying.

Gazprom on Jan. 1 increased its deliveries to Europe through Ukrainian territory by 20 million cubic meters a day. It accused Ukraine yesterday of siphoning off that amount and blocking access to the transit facilities by independent experts. Naftogaz said it is using the Russian gas to keep the pipeline network operational.

Debt Disagreement

Kupriyanov said that Ukraine would still owe Russia $614 million after paying $1.5 billion for gas received in November and December plus fines.

Naftogaz doesn't recognize any debt on Russian gas and has "paid for everything," Valentyn Zemlyanskyi, a spokesman for the Ukrainian utility, said by phone in Kiev. Zemlyanskyi said any penalties for late payment must be discussed in court.

The threat to European energy supplies is less severe than during the 2006 dispute, because liquefied natural gas shipments have diversified supplies and utilities say they have sufficient inventories. Ukraine said prior to the cutoff that it had gas in storage equivalent to about 35 percent of annual consumption.

'Holding Pattern'

"Talks are in a holding pattern, as there are no looming deadlines," Ronald Smith, chief strategist with Moscow-based Alfa Bank, said by telephone from London. "Ukraine has gas in storage, reportedly, and gas is flowing into Europe."

Russia said its $250 offer already marked a concession to Ukraine, pointing out that Gazprom will pay an average of $340 per 1,000 cubic meters of gas from three Central Asian nations in the first quarter.

Naftogaz on Dec. 31 also asked for a transit rate for gas from Russia of $1.80 per 1,000 cubic meters per 100 kilometers (62 miles). That compares with the agreed 2008 rate of $1.70. Russia is refusing to renegotiate the transit tariff, saying its agreement runs until the end of 2010.

U.K. February gas fell 3.95 pence, or 6.7 percent, to 54.75 pence a therm yesterday, according to data from broker Spectron Group Ltd. That's equal to $7.95 a million British thermal units.

-- With reporting by Daryna Krasnolutska, Kateryna Choursina in Kiev, Balazs Penz in Budapest, Mathew Carr in London, Katarzyna Klimasinska in Warsaw, Radoslav Tomek in Bratislava, Adam Freeman in Rome, Kevin Costelloe in Brussels and Lenka Ponikelska in Prague. Editors: Mark Sweetman, Dick Schumacher.

Source:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9JA5h3CACr8&refer=home

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