BELARUS NEWS AND ANALYSIS

DATE:

29/12/2006

Gas Deadline Looms for Lukashenko

By Anatoly Medetsky

Staff Writer

With four days left before Russia is slated to cut off gas to Belarus, Minsk and Moscow remain locked in a price dispute that is hurting Russia's reputation as a reliable energy supplier.

Russia has said it will stop gas supplies at 10 a.m., Jan. 1. In retaliation, Minsk vows it will freeze gas flowing from Russia through Belarus to Europe the same day.

On Thursday, the European Union called on Russia and Belarus to settle the dispute, as concerns mushroomed that the current deadlock could be a replay of last January's showdown between Russia and Ukraine. That disagreement led to a brief shutoff of gas supplies to Ukraine and sharply cut gas to Europe.

EU Energy Commissioner Andris Piebalgs said in a statement posted on the EU's web site: "I call on the two sides to reach as soon as possible a satisfactory agreement that will not put into question gas transits to the EU."

Belarus handles 20 percent of Russia's gas exports to Europe; the other 80 percent of exports traverse Ukraine.

Failure to forge a deal with Belarus would reduce Gazprom's gas flow to Europe by one-third, Gazprom spokesman Sergei Kupriyanov said.

As of late Thursday, Gazprom and Belarussian officials continued to negotiate, but no deal was in sight.

Gazprom demands that Belarus pays $105 per 1,000 cubic meters of gas -- $75 in cash and $30 in shares of the national pipeline operator.

A Russian government source said late Thursday, following a conversation between the prime ministers of Russia and Belarus, that Gazprom would stick to its demands.

Belarus insists that Gazprom lower its asking price to $75 from $105. Analysts say Minsk officials calculate that Gazprom will back down to save its reputation as a reliable gas supplier.

Cutting gas to Belarus would once again stir fears across Europe of dependence on Russian energy supplies, said Stephen Dashevsky, the head of research at Aton brokerage.

But unlike Moscow's squabble with Kiev, Dashevsky said, European customers are likely to blame Russia's antagonist this time around, not Russia, as they did earlier this year.

"It is clear to them that it is not Russia ... which is to be blamed but an unstable transit country that cannot guarantee that the gas reaches the end customer," he said.

The dispute could affect supplies to Poland, Lithuania and Germany.

EU's Gas Coordination Group -- composed of representatives from member states, the energy sector and consumers -- will meet at Piebalgs' request in Brussels on Jan. 4 to evaluate the situation regardless of the outcome of talks between Gazprom and Belarus, Piebalgs said.

Germany's economics minister, Michael Glos, has called for a quick resolution of the standoff.

Still, E.On Ruhrgas AG, Germany's largest importer of natural gas, said its reservoirs were full and that most of its Russian gas came via Ukraine, not Belarus.

But Gazprom is already telling customers to brace for the worst.

Poland's national gas company, PGNiG, said Thursday that it had received a warning from the Russian gas giant that supplies could be stalled.

"It could not rule out the possibility of supply disruptions as of Jan. 1, 2007 should Beltransgaz take gas from the transit system without authorization," PGNiG said in a statement.

Kupriyanov, Gazprom's spokesman, said the dispute with Belarus would not affect its Yamal-Europe pipeline, which runs through Belarus.

This year, Gazprom has pumped 30 billion cubic meters of gas through the Yamal-Europe pipeline alone, he said. Beltransgaz, the Belarus pipeline operator, handles 14.5 bcm of Gazprom's Europe-bound gas.

Belarussian officials said that if Gazprom tried to pump gas through the Yamal-Europe pipeline without a signed agreement, Minsk would regard that as smuggling.

Kupriyanov insisted that Gazprom does not need transit permission from Belarus to use Yamal-Europe.

"Gazprom ownership of the Belarussian stretch of Yamal-Europe has been recognized, and the company has a long-term lease for the land underneath," he said Thursday. "In other words, the Belarussian stretch of Yamal-Europe is a fully Russian gas pipeline."

Belarus has reportedly stockpiled oil and coal for its power plants, allowing them to run several weeks without Russian gas. A spokesman for Belenergo, a power generating company, refused to comment Thursday.

Ukraine offered Thursday to help Russia supply gas to European consumers if a pricing dispute between Belarus and Russia disrupts supplies.

"We are in a position to offer help to European customers by increasing transit to whatever volume is necessary to ensure the stable functioning of our neighbors in the European Union," Fuel and Energy Minister Yuriy Boyko said, Interfax reported.

Belarussian President Alexander Lukashenko likely hopes the West will back him if Europe stops getting adequate gas supplies, said Alexander Rahr, a Russia expert at the German Council on Foreign Relations.

Lukashenko understands the West fears a growing, self-confident Russia more than it fears Lukashenko. But because European leaders have slapped so many sanctions on the Belarussian dictator, it would be hard for them to support him in the event of a gas shutoff.

No matter the outcome, the current dispute will damage Russia's reputation as a reliable energy supplier in light of last year's crisis and the recent decision by Shell and its partners to sell a controlling stake in the Sakhalin-2 project after considerable Kremlin pressure, a U.S. energy expert said.

"This is coming right on the heels of the Sakhalin-2 reorganization, and it will be seen as an increasingly worrisome pattern," Clifford Kupchan, director for Europe and Eurasia at Eurasia Group, a Washington-based consultancy, said by telephone Thursday.

But Kupchan said there was a good chance of a resolution before the new year. "Lukashenko is very dependent on Russia, Gazprom has enough stockpiles in Europe, and it's been a warm winter," he said. Even if there were a shutoff, Kupchan added, it would only last a few days, as was the case in Ukraine. "Russia does not want to further damage its reputation as an energy supplier, especially in Germany," Kupchan said.

But the damage to Russia's image would not be as great as it was when it cut off gas to Ukraine because that was seen as an attempt to punish the pro-Western government under President Viktor Yushchenko, Aton's Dashevsky said.

Valery Nesterov, an oil and gas analyst at Troika Dialog, agreed with Dashevsky. Nesterov speculated that there was a 50 percent chance an agreement would not reached and that Gazprom would cut off gas flows.

"The disruption may last several days, and then Lukashenko will sign the contract," he said.

Staff Writers Carl Schreck and Nabi Abdullaev contributed to this story.

Source:

http://www.moscowtimes.ru/stories/2006/12/29/001.html

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