BELARUS NEWS AND ANALYSIS

DATE:

25/01/2010

Kremlin feuds with Belarus over oil, gas

Ed Bentley

As Russia's row over oil and gas with Belarus rumbles on, Moscow's annual bickering with transit countries is upping the ante for getting new energy pipelines online.

European countries are worried that there could be a repeat of the gas shut-off of 2009 after talks over the weekend deepened the dispute amid accusations that Russia had backtracked on a three-year-old agreement to reduce export

"The customs committee is an instrument of the president and the government, and if a decision on retaliation is made, we will be ready to carry it out in full," Alexander Shpilevsky, the head of the Belarussian customs committee, told a conference, RIA Novosti reported.

Russia imposed full duties on oil to Belarus following the failure to agree new prices after the old agreement expired on Jan. 1, but analysts are confident that a new deal can be reached.

"The deal will happen, but we don't know if it will happen in a week or two months," said Valery Nesterov, an oil and gas analyst at Troika Dialog.

Gas prices are also under discussion despite the deal not expiring until 2012, with Minsk holding out for a discount of between 20 per cent and 25 per cent, which would bring it down to $150 per 1,000 cubic metres, while Moscow is offering a 10 per cent cut.

To sweeten the deal, Belarus has offered Gazprom the opportunity to build a gas-fired power station, but Citibank analysts say it will be "of little interest" to the state monopoly.

"We believe that this year Gazprom will try to stick to the original agreement, as the current contract with Belarus runs until 2012 and then it will have to be renewed again," Citi analyst Alexander Korneyev wrote in a note to investors.

Russia appears to have the upper hand in the dispute, with neighbouring countries dependent on receiving transit revenue as well as the gas they need.

"Pipeline supplies to Europe have been going down as a share of total exports in the past years, and it is in the interests of transit countries to preserve the existing contracts with Russia," said Lev Snykov, an analyst at VTB.

However, the constant wrangling increases the importance for Russia of getting new pipelines, specifically the North Stream and South Stream projects, to bypass Ukraine and Belarus.

"From an energy security point of view, the government was right in starting these projects," said Nesterov. "They need more routes."

Some analysts are sceptical of Russia's motives for holding out on the deal, claiming that Moscow is trying to increase its influence over its neighbours.

"Bypassing gas pipelines will move the same transit problems from Ukraine to Bulgaria and from Belarus and Poland to Germany," Mikhail Korchemkin, head of East European Gas Analysis, said in an e-mail.

"The problem is the Kremlin wants more than to export gas. It wants to use its gas as a political instrument."

And while oil flow through the Druzhba pipeline to Belarus is down, a cut-off seems unlikely with Russia reluctant to disrupt supplies to its main consumers in Europe.

"Russia is very interested in sustaining and increasing energy supplies - it is not going to cut off the gas," said Nesterov.

Korchemkin, however, doesn't believe that new pipelines make sense as a business decision and believes Gazprom's aim is to increase its influence.

"Most importantly, the expensive bypassing pipelines will not increase the export volumes and profits of Gazprom," he said.

Source:

http://www.mnweekly.ru/business/20100125/55405455.html


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