BELARUS NEWS AND ANALYSIS

DATE:

02/01/2009

Gazprom Boosts Belarus Gas Supplies as Ukraine Dispute Deepens

By Stephen Bierman and Henry Meyer

Jan. 3 (Bloomberg) -- OAO Gazprom boosted gas supplies to Europe through Belarus as Russia's dispute with Ukraine over pricing deepened and no new talks were scheduled.

The Ukrainian negotiating team remained in Kiev and hasn't said when it plans to return to Moscow, Gazprom spokesman Sergei Kupriyanov told reporters yesterday. Talks between the two sides on the price of gas deliveries to Ukraine for 2009 and transit fees for Russian gas to Europe through the country broke down on Dec. 31 and Gazprom cut supplies of the fuel to Ukraine Jan. 1.

Russia, which supplies a quarter of Europe's gas, 80 percent through Ukraine, is seeking to avoid further damage to its reputation after its August war with U.S.-allied Georgia. This week's cutoff echoed a similar dispute in 2006 which disrupted supplies to Europe, calling into question Russia's reliability as an energy supplier.

"The long-term implication is that it will encourage Europe to diversify its supply," Dieter Helm, professor of energy policy at Oxford University, said yesterday. "Supply in Europe isn't being threatened, at least not for the coming days. But give it a week and that may change."

Officials from Gazprom, Russia's state gas exporter, are ready to travel to Brussels and European Union countries to explain Russia's stance, the Russian Foreign Ministry said yesterday. A Ukrainian delegation led by Energy Minister Yuriy Prodan was already on a tour of EU capitals, visiting Prague and Bratislava to hold talks on the gas price and debt conflict.

Offer Withdrawn

"It's a game of nerves like it was three years ago," Masha Lipman, an analyst with the Moscow Carnegie Center research group, said in a phone interview.

Gazprom on Jan. 1 withdrew an offer to sell Ukraine gas at $250 per 1,000 cubic meters as the Ukrainian side pushed for a cheaper rate, saying the country must now pay a European market price of $418. Kupriyanov said Gazprom has increased shipments of gas through an alternative route via Belarus, and has capacity to send further supplies using that network.

"The Belarus option is certainly viable and they could put some of the gas through Belarus," Jonathan Stern, director of gas research at Oxford Energy, said. "But it certainly is not the solution. There is some spare capacity within the Belarus corridor but it is probably within the order of 10 percent from Ukraine capacity."

Ukraine, which relies on Russian gas for 70 percent of its needs, is in the midst of a financial crisis that has forced it to secure a two-year, $16.4 billion International Monetary Fund bailout. It is asking Russia to pay higher transit fees if it wants to raise gas prices.

European Market

The European Union urged Russia and Ukraine to "rapidly" resolve their dispute and said it counted on assurances gas supplies would continue uninterrupted. The U.S. said the two sides should resolve their differences "through good-faith negotiations, without supply cutoffs."

The main consumers of Russian gas transported through Ukraine said they were so far seeing little effect and were prepared for any drop. Slovakia and the Czech Republic yesterday said their supplies have so far been normal. Italy said it can meet any short-term demand from storage and could, if necessary, increase supplies from Algeria.

Polskie Gornictwo Naftowe I Gazownictwo SA, Poland's largest gas distributor, said Russian gas supplies via Ukraine were down and that deliveries via Belarus had risen to cover them.

In Hungary, which saw deliveries fall as much as 35 percent in the 2006 dispute, there was a drop of pressure detected at the border, but no decline in the amount delivered so far, Edina Lakatos, a spokeswoman for Mol Nyrt. unit FGSZ Zrt., which operates the country's gas transmission network, said by phone.

Ukraine Debt

Gazprom on Jan. 1 increased its deliveries to Europe through Ukrainian territory by 20 million cubic meters a day. It accused Ukraine yesterday of siphoning off that amount and blocking access to the transit facilities by independent experts. Ukrainian state energy company NAK Naftogaz Ukrainy said it is using the Russian gas to keep the pipeline network operational.

Kupriyanov said yesterday that Ukraine would still owe Russia $614 million after paying $1.5 billion out of debts of $2.1 billion for gas received in November and December plus fines.

Naftogaz doesn't recognize any debt on Russian gas and has "paid for everything," Valentyn Zemlyanskyi, a spokesman for the Ukrainian utility, said by phone in Kiev. Zemlyanskyi said any penalties must be discussed in court.

The threat to European energy supplies is less severe than during the 2006 dispute, because liquefied natural gas shipments have diversified supplies and utilities say they have sufficient inventories. Ukraine says it has gas in storage equivalent to about 35 percent of annual consumption.

'Holding Pattern'

"Talks are in a holding pattern, as there are no looming deadlines," Alfa Bank Chief Strategist Ron Smith said by telephone from London yesterday. "Ukraine has gas in storage, reportedly, and gas is flowing into Europe."

Naftogaz Chief Executive Officer Oleh Dubina said Ukraine offered on Dec. 31 to pay Russia $235 per 1,000 cubic meters, compared with the 2008 rate of $179.50.

Russia said its $250 offer already marked a concession to Ukraine, pointing out that Gazprom will pay an average of $340 per 1,000 cubic meters of gas from three Central Asian nations in the first quarter.

Naftogaz on Dec. 31 also asked for a transit rate for Russian gas of $1.80 per 1,000 cubic meters per 100 kilometers (62 miles). That compares with the agreed 2008 rate of $1.70. Russia is refusing to renegotiate the transit tariff, saying its agreement runs until the end of 2010.

U.K. February gas fell 3.95 pence, or 6.7 percent, to 54.75 pence a therm yesterday, according to data from broker Spectron Group Ltd. That's equal to $7.95 a million British thermal units.

-- With reporting by Daryna Krasnolutska, Kateryna Choursina in Kiev, Balazs Penz in Budapest, Mathew Carr in London, Katarzyna Klimasinska in Warsaw, Radoslav Tomek in Bratislava, Adam Freeman in Rome and Lenka Ponikelska in Prague. Editors: Guy Collins, Rob Verdonck.

Source:

http://www.bloomberg.com/apps/news?pid=20601085&sid=aABIK3p_fe_I&refer=europe

Google
 


Partners:
Face.by Social Network
Face.by