Gazprom: European gas secure despite Belarus dispute

Author: Lianna Brinded

Gazprom quells market fears over a future European gas shortage by confirming its "readiness" to ensure additional gas deliveries to Europe in the event of Belarus shutting off Gazprom's main gas transit system through the country

Gazprom's spokesman Sergei Kupriyanov said in a telephone briefing that Europe does not need to worry about its future gas supply as the group will guarantee delivery via different supply routes "regardless of Belarus' actions". This would include using spare capacity in the pipeline system while supplies to Poland could be diverted via Ukraine.

The world's largest gas producer, Gazprom began reducing deliveries to Belarus by 15% at 10:00 am Moscow time (07:00 am GMT) on June 21 and cut supplies by a further 15% on June 22, following a dispute over gas debt repayments.

Gazprom indicated that it may cut supplies by up to 85%, depending on "how constructive talks are", added Kupriyanov.

"Belarus were aware of what steps would be taken, as per their contract, if they did not pay", added Kupriyanov.

Gazprom says Belarus owes $192 million for deliveries, as Belarus has paid for the gas at a lower price than Gazprom has charged. Russian Prime Minister Vladimir Putin said in March this year that Belarus will receive $4.2 billion in Russian subsidies this year through lower-than-market gas prices and tax-free oil deliveries.

However, Belarus President Aleksandr Lukashenko threatened to halt gas transit to Europe and accused OAO Gazprom of starting a "gas war" and demanded that the Russian export monopoly pay an extra $260 million in transit fees.

When asked about whether Gazprom did indeed owe Belarus transit fees, Kupriyanov said: "This is a technical issue. Belarus has tried to increase transit tariff fees outside of the contract, which we are assessing now."

Despite Russian gas making up over 20% of European gas imports, with some countries, such as Germany, reliant on Russia for more than one third of their gas needs, only 20% of Russian gas exports are transited through Belarus.

Market participants also seem confident that even if the spat between Gazprom and Belarus deepens, Europe will have secure gas supply from Russia.

"On paper the situation between Russia and Belarus should not really affect the market as there is enough spare capacity in the system to cope," says Craig Lowrey, consultant at financial risk consultants JC Rathbone Associates. "Ultimately the fact that Belarus is responsible for a comparatively small volume of gas to Europe relative to Ukraine means that we shouldn't see the same sort of problems that we had with the last Gazprom-Naftogaz dispute."

Andrew Moorfield, head of oil and gas at Lloyds Banking Group adds: "This is sabre rattling and we don't foresee any immediate impact on gas prices. Gas prices have been depressed and we forecast this will continue. However, the longer-term impact is that it will encourage European countries to accelerate development of new strategic supply sources. This includes Norway, North Africa, the Atlantic margin as well as investing in LNG import facilities."

Russian gas makes up over 20% of European gas imports and certain countries, such as Germany, are reliant on Russia for more than one third of their gas needs. When Russia cut off gas supplies to Ukraine for the second time in January 2009 the effects were felt directly in Eastern Europe, generating fresh fears over the reliability of Russian supply.


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