BELARUS NEWS AND ANALYSIS

DATE:

10/01/2007

Russia Seeks Pipelines Besides Belarus

By ALEX NICHOLSON Associated Press Writer

MOSCOW - When Russia shut down one of its main oil pipelines to Europe this week in a dispute with Belarus, top Russian officials boldly claimed that the delivery system for the country's key export commodity could be reconfigured.

But analysts say such comments appear to be more show than substance.

Although Belarus announced Wednesday it was lifting the transit duty that prompted Russia to shut down the pipeline, the dispute underlined the vulnerability of Russia's system for sending its "black gold" abroad _ a complicated web of pipelines threading through quarrelsome and antagonistic countries.

It was still unclear Wednesday when oil might start flowing through the Druzhba, or Friendship, pipeline. If the taps remained turned off beyond the weekend, analysts say Russian companies could be forced to cut production with no short-term means to resume delivery of 1.6 million barrels to Poland, Germany, Ukraine, Hungary, Slovakia and the Czech Republic.

By that time, storage facilities would be overflowing: "After that you run out of places to put it," said analyst Chris Weafer of Alfa Bank in Moscow.

Though Energy Minister Viktor Khristenko said Tuesday that Russia could ratchet up its rail and river transport deliveries, as well as expanding the pipeline system that takes oil to St. Petersburg for loading onto tankers, Weafer said such options could not be carried out quickly.

"Probably there's a bit of space here and there, but those routes are running pretty much to capacity. Every oil car they can get their hands on is being used to send oil to China," Weafer said.

Oleg Maximov of the Troika Dialog investment bank agreed. "It's a joke ... they'll have to sort it out soon. It's impossible to make up for the supplies by other routes."

Given the limited alternatives, Khristenko's comments, backed up by Economic Minister German Gref, look more like political spin: Russia is eager to reassure European governments stunned by the second pipeline closure in 12 months involving Russia; top government and Kremlin officials have been unusually eager to speak to the press.

A gas price fight with Ukraine saw supplies temporarily switched off in January last year.

Despite there being no short-term fix, Andrew Neff, an analyst with London-based Global Insight told the AP that the Belarus dispute could give Russia further impetus to diversify its land-based pipeline routes.

"Russia could seek to reduce Belarus's potential leverage in any future dispute by building a series of potential bypasses," he said.

Possible projects might include a southern pipeline skirting Belarus to Ukraine or a link to the Baltic coast through Latvia or Estonia. And while it wouldn't necessarily target European consumers, a shelved project to send West Siberian oil to a deepwater Arctic terminal in Murmansk could reduce Russia's reliance on Europe as an export destination for its oil.

While the countries affected insist they have sufficient reserves to weather a cut in supplies for months, the cutoff has emphasized Europe's need to diversify its energy supplies.

"The disruptions in oil supplies have yet again undermined Russia's efforts to establish itself as a reliable source of fuel supplies to Europe," Deutsche UFG analysts wrote in a note to investors.

EU Commission President Jose Manuel Barroso criticized the shutdown Tuesday. In a new energy strategy released Wednesday, the European Union warned that Europe must look for alternative sources of energy, saying it is uncertain whether major oil and gas producers such as Russia will make the investments and commitments needed to keep Europe's economy running.

If the oil does not start flowing by Saturday, Russia will have lost some $320 million in taxes on revenue of $400 million that oil companies expected to receive on oil sales through the pipeline.

Despite unconfirmed reports of a resolution to the dispute from the Belarus presidency, possible production cuts could be on the table. In an address to his Cabinet on Tuesday, President Vladimir Putin suggested that Russia was prepared to grit its teeth and cut back production and Russian oil company executives were due to meet with Energy Minister Khristenko Wednesday evening.

Associated Press writers Matt Moore in Frankfurt and Palma Benczenleitner in Budapest contributed to this report.

Source:

http://www.chron.com/disp/story.mpl/ap/fn/4460885.html