BELARUS NEWS AND ANALYSIS

DATE:

06/08/2007

Gas ultimatums versus common sense

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - In the end, Gazprom did not cut gas supplies to Belarus by 45% on August 3 as it had threatened because Minsk paid $190 million of its $456 million debt for gas delivered in the first half of this year. It has a week to repay the rest.

But even if Belarus pays its gas debts in full, this incident has prompted Russia to continue building gas and other pipelines that bypass Ukraine and Belarus with redoubled energy.

The summer gas conflict with Belarus started brewing in January. Following heated debates, the Russian energy giant signed a new contract with its Belarusian partners shortly before the New Year, stipulating an increase in gas prices from $46.70 to $100 per 1,000 cubic meters.

Minsk was to pay only 55% of the price of gas supplied until July 1. After that, it was to pay 100% of the price in addition to repaying its debts for the first half of the year. According to Gazprom, Minsk owes it more than $456 million for gas supplied in January-June. It was its failure to pay these debts that provoked the conflict.

It is standard international practice for the terms of a contract to be obeyed come rain or shine. But Gazprom's price policy regarding Ukraine and Belarus, the main transit countries for Russian gas supplies to Western Europe, has changed radically in the past two years. Before that, Gazprom delivered gas to them at prices well below the ones it charged Europe, but it also paid less for gas transit across them.

The scheme was not fail-safe, yet the transition to market prices ended up provoking even more nerve-racking conflicts with Ukraine in the winter of 2006 and with Belarus in the winter of 2007. Like the proverbial bull in a china shop, Gazprom presented its price ultimatums to the former-Soviet neighbors on New Year's Eve. It then did what it promised, cutting gas supplies through the transit pipe, so that much less fuel reached Italy or Germany than they should have received under contracts. Europe was shocked.

Its reaction was much milder this summer, as the weather is warm and the EU countries need less fuel. However, the European Commission decided to convene its Gas Coordination Group on August 6-12. The group will most likely recommend accelerating the construction of the North European gas pipeline - the Nord Stream - across the Baltic Sea to Germany, bypassing Belarus and Poland.

The EU fully supports the idea of Nord Stream, and now interprets its energy security not as a diversification of gas suppliers, but as a diversification of gas routes from Russia.

Likewise, Italian companies and Gazprom are now discussing the construction of the South Stream pipeline across the Black Sea to Bulgaria, Greece and on to southern Europe, bypassing Ukraine.

However, the economic expediency of these projects is questionable, because it would be cheaper to supply more gas to, say, Germany and Italy along available pipelines.

Nobody can say now if Gazprom's new pricing policy will end up benefiting either Russia or Western European gas consumers.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Source:

http://en.rian.ru/analysis/20070806/70442632.html