BELARUS NEWS AND ANALYSIS

DATE:

27/12/2006

Gazprom Risks Reputation With Belarus Gas Threat

By Lucian Kim and Katya Andrusz

Dec. 27 (Bloomberg) -- OAO Gazprom's threat to cut off natural-gas deliveries to Belarus because of a price dispute risks intensifying European Union distrust of Russia over secure energy supplies.

Poland, which depends on Gazprom pipelines for 64 percent of its gas deliveries, is bringing the possibility of a New Year's Day shutoff to the top of the EU foreign policy agenda. Germany, Gazprom's biggest customer, takes over the EU presidency on Jan. 1.

``This problem is a threat to us,'' Poland's Deputy Foreign Minister Pawel Kowal said in a radio interview on Warsaw's Station 1 today. ``We want to convince everyone that it's also a key issue for Europe.''

Poland, like other EU members Germany and Italy, experienced a drop in gas volumes in January after Gazprom cut off supplies to Ukraine in a similar price dispute. While Belarus ships only a quarter of Ukraine's volumes, a repeat scenario would add to EU fears that President Vladimir Putin is using Gazprom to muscle into Europe's gas-distribution and transportation networks.

Gazprom is demanding that Belarus surrender half of Beltransgaz, the country's pipeline operator, in return for preferential pricing through 2011. Belarus walked away from talks and suggested today that it may tap into transit shipments bound for Europe if there's a cutoff.

`Room for Agreement'

``As long as Russia doesn't have Beltransgaz in its hands, Belarus can blackmail it,'' said Adam Eberhardt, a Belarus specialist at the Polish Institute of International Affairs in Warsaw. ``Russia would like to avoid an open conflict because it doesn't want any problems with European Union countries.''

The EU has so far kept out of the escalating war of words between Belarus and Gazprom.

``There is still room for agreement between Belarus and Russia,'' European Commission spokesman Amadeu Altafaj said today. ``We are not yet in a crisis situation.''

E.ON Ruhrgas AG, Germany's largest gas provider, doesn't expect shortfalls because its storage tanks are full and most of its gas from Russia comes via Ukraine, spokesman Helmut Roloff said.

Poland has enough gas reserves to continue normal supplies for about 44 days as long as the weather remains mild, Polish broadcaster TVN24 reported today.

Gazprom told the country's gas monopoly, Polskie Gornictwo Naftowe i Gazownictwo SA, that supplies may be disrupted beginning Jan. 1 should Beltransgaz takes transit gas for use in Belarus, the Polish company said in a statement on its Web site.

The fallout from a shutoff is more likely to be measured in reputation than in gas volumes, Deutsche UFG said in a note to clients today.

``The damage caused to Gazprom's status as a reliable gas supplier may theoretically be greater than last time round,'' Deutsche UFG said.

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net ; Katya Andrusz in Warsaw at kandrusz@bloomberg.net

Source:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a0HOzWRpKzns&refer=home