UPDATE 3-Russia, Belarus gas talks fail, cut-off looms

By Dmitry Sergeyev

ST PETERSBURG, Russia, June 19 (Reuters) - Russian gas giant Gazprom (GAZP.MM: Quote) failed on Saturday to resolve a price row with Belarus, threatening a supply cut-off which could affect Europe, though not as severely as a dispute with Ukraine in 2009.

Gazprom's Chief Executive Alexei Miller warned that supply cuts would start on Monday if Belarus fails to pay its outstanding gas debts, Interfax news agency reported.

Belarus disputes this year's price increases and says it owes nothing. The two parties met on Saturday, but their last-minute attempt to reach a deal failed.

Russia's gas price disputes with its neighbours became a worry for Europe when its supplies were halted for almost two weeks in January 2009 while Moscow and Ukraine argued over prices and transit terms.

Any cuts, especially if they affect supply beyond Belarus, could further damage Russia's reputation as a reliable exporter at a time when Gazprom is facing falling demand from crisis-hit Europe and competition from U.S.-produced shale gas.

A cut in supply to Belarus would not affect Europe as much as the 2009 standoff with Ukraine because only about a fifth of Russia's gas exports to Western Europe go through Belarus with the rest going through Ukraine. Seasonal demand is also much lower than in the winter when the 2009 disruption took place.

"It is summer and the consumption in the summer is lower .... Demand for gas in Europe has fallen in the last month and a half," Miller told a news briefing. "In any case, the gas transport capacity is not filled 100 percent. So I think this issue (of supplies to Europe) should be viewed very calmly."


Energy experts agree that a worst-case scenario of seriously damaged supplies to Europe is unlikely. Gazprom can re-route gas deliveries to Europe to avoid Belarus.

Poland can import Russian gas via Ukraine and Germany can receive it through Ukraine, Slovakia or the Czech Republic, said Mikhail Korchemkin at think tank East European Gas Analysis.

The state-controlled behemoth supplies a quarter of Europe's gas needs, with exports expected to reach 160 billion cubic metres this year. Gas-hungry Poland, which is trying to secure additional volumes from Gazprom, receives about 8 billion cubic metres of Russian gas through Belarus.

Hopes had been voiced that a deal could be reached before Saturday's talks failed.

"I think there is a big chance of a peaceful resolution and of the fulfilment of the contract conditions which were envisaged," Russia's Energy Minister Sergei Shmatko told reporters on the sidelines of the St Petersburg Economic Forum before news of the failure broke.

Belarus President Alexander Lukashenko said on Friday he did not believe his country had any debts outstanding for Russian gas, but would settle any disagreement. Belarus wants to settle any outstanding debt at last year's lower prices.

Gazprom says Belarus has been paying $150 per 1,000 cubic metres of gas this year, instead of the $169.20 that Gazprom charged in the first quarter and $184.80 in the second, and could owe more than $500 million by the end of the year. (Reporting by Dmitry Sergeyev; writing by Vladimir Soldatkin; editing by Peter Graff)


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