BELARUS NEWS AND ANALYSIS

DATE:

27/12/2006

Gas Cutoff to Belarus Draws Nearer

By Anatoly Medetsky

Staff Writer

Last-ditch gas price talks between Gazprom and Belarus aimed at averting another potentially bruising New Year's standoff broke up Tuesday without agreement.

Gazprom on Tuesday said it was offering to restrict the price for Belarus to $80 per 1,000 cubic meters in return for control of half of Beltransgaz, the country's pipeline network.

If no agreement is reached, Gazprom has said it will cut off supplies Jan. 1, in a potential replay of this January's dispute with Ukraine. In that standoff, supplies to Europe suffered, prompting the West to accuse the Kremlin of using Gazprom as a political tool.

Unlike Ukraine, however, Belarus has not sought closer ties with NATO or the European Union, and regards Moscow, its partner in the loose Russia-Belarus union, as a key ally.

Another Gazprom customer faced with a higher price, Azerbaijan, on Tuesday rejected Gazprom's price demand, saying it would rely on its own resources.

Talks with Belarussian Deputy Prime Minister Vladimir Semashko on Tuesday "ended without a result," Gazprom spokesman Sergei Kupriyanov said.

By not striking a deal, Belarus could prompt Gazprom to pull the plug on its gas supplies, Kupriyanov warned Monday.

"Belarus' negotiating position is irresponsible and puts at risk the energy supplies to this country," he said in televised remarks.

The standoff would not hurt Russian gas transit to Europe through Belarus, Kupriyanov said by telephone Tuesday. "A stoppage of supplies from Russia is not at issue."

Two-thirds of the gas exported from Russia through Belarus is carried by the Yamal-Europe pipeline, which is fully Gazprom-owned, Interfax reported Tuesday.

Gazprom has also stored more gas in Europe, in the event of transit disruption, compared with the same time last year, Kupriyanov said Tuesday.

Belarussian officials Tuesday downplayed the risk of a New Year's standoff. "It's too early for Kupriyanov to make such statements. Everything will be good," Andrei Zhukov, a spokesman for the Belarussian energy ministry, said by telephone from Minsk.

Gazprom has hiked gas prices for a number of former Soviet states, such as Ukraine, drawing accusations that the increases are being doled out as a weapon to punish the countries for their Western leanings. But Belarussian President Alexander Lukashenko is a staunch political ally of President Vladimir Putin and has never irritated Moscow by seeking closer ties with the West.

Russia's insistence on higher gas prices for Belarus reflects its disappointment with the idea of uniting in a single state, said Alexander Shmelyov, director of the Center for Comparative Political Research at the Russian Academy of Sciences. "What's clear is that we'll need to build relations as independent states," he said.

A higher gas price would reduce the funds for social spending in Belarus, thus undermining Lukashenko's grip on power, he said.

Belarus, which currently pays Gazprom $47 per 1,000 cubic meters for its gas, wants to buy at the price paid by the neighboring Russian region of Smolensk, where industrial consumers pay $54 per 1,000 cubic meters.

Gazprom demands that Belarus either pay $200 next year, a more than fourfold increase on this year, or pay $110 for the next four years and sell Gazprom half of Beltransgaz, Kupriyanov said.

Of that amount, Belarus would pay $75 to $80 in cash and the rest in Beltransgaz shares, Kupriyanov said Tuesday.

Gazprom agreed to value Beltransgaz at $5 billion, the figure sought by Belarus, Kupriyanov said Tuesday.

"However Belarus declined this proposition as well," Kupriyanov said.

Beltransgaz deputy general director Venery Volchuga hung up his cell phone when reached for comment in Moscow on Tuesday.

The date for the next round of talks has not been set yet, Kupriyanov said.

The Yamal-Europe pipeline will have transported 29.5 billion cubic meters in 2006 while Beltransgaz will have handled 14.5 bcm, Interfax reported. The share handled by Beltransgaz will further decline when Yamal-Europe expands its capacity, the report said.

Azerbaijan rejected Gazprom's offer to buy gas at $235 per 1,000 cubic meters next year, Rovnag Abdullayev, president of the Azeri state oil company, said in Baku on Tuesday.

Eighty percent of the gas that Russia sells to Azerbaijan comes from Kazakhstan and Turkmenistan at the going price of $100 per 1,000 cubic meters, Abdullayev said.

"We can't understand why transportation of this gas costs $135," he said, Interfax reported.

The latest talks between Gazprom and Azerbaijan ended Friday.

Azerbaijan will use its oil resources instead of gas at its power stations, Azeri President Ilham Aliyev said in an interview with Ekho Moskvy radio on Saturday. As a result, it will reduce crude exports through Russia to the Black Sea port of Novorossiisk, he said.

Azerbaijan will also negotiate gas supplies with Iran, Abdullayev said.

Azerbaijan is importing 4.5 bcm of gas from Russia this year at $110 per 1,000 cubic meters. It produced 6.1 bcm of its own gas in the period from January through November, Interfax reported.

The prospect of Azerbaijan having to rely on its own gas comes as the country is about to start exporting gas to Turkey and Georgia from the BP-led Shah Deniz field in the Caspian Sea.

Georgia is seeking 800 million cubic meters of Azeri gas next year, originally allotted to Turkey. On Friday, Georgia also agreed to buy 1.1 billion cubic meters from Gazprom. Gazprom will sell the gas at $235 per 1,000 cubic meters, and Georgia has yet to hammer out the price for the Azeri gas that will flow via the Baku-Tbilisi-Erzerum gas pipeline.

The Shah Deniz pipeline has yet to go on line. The Azeri state oil company said Tuesday that a leak in one of the field's wells had delayed production until January.

Gazprom and Moldova on Tuesday agreed to sign a contract that would put the price for Russian gas at $170 per 1,000 cubic meters next year, a modest increase from the current price of $160, the company said in a statement.

Gazprom CEO Alexei Miller and Moldovan First Deputy Prime Minister Zinaida Grecianii agreed to further raise the price over the next few years before it reaches European levels in 2011, the statement said. Moldova, which is importing 2.5 bcm of gas this year, will allow Gazprom to gain more stock in its gas distribution company, Moldovagaz, the statement said.

Source:

http://www.themoscowtimes.com/stories/2006/12/27/001.html