BELARUS NEWS AND ANALYSIS

DATE:

28/01/2010

Precarious Russia oil deal may hit Belarus refiners

By Robin Paxton and Gleb Gorodyankin

MOSCOW, Jan 28 (Reuters) - Belarus may need to cut refinery runs after bending to Russian demands on the amount of oil it can import duty-free, traders said on Thursday, a day after the ex-Soviet states signed a deal to end a month-long oil dispute.

But Russia's hard-won deal, which will secure the Kremlin a bigger share of oil revenues, may prove to be short-lived. The Belarussian government said in a statement it would pursue the removal of export tariffs in line with a planned customs union.

"Within a customs union, the agreements reached in Moscow cannot exist for long," the Belarussian government said. Russia and Belarus agreed an oil supply deal on Wednesday, easing fears in Germany and Poland that the escalating dispute could affect deliveries of crude along a route carrying about 10 percent of European supplies from West Siberian oilfields.

Russia agreed to supply 6.3 million tonnes of duty-free oil to Belarus, enough for its domestic consumption, with a proviso that this amount could be raised after September should the Belarussian economy exceed growth forecasts. [ID:nLDE60Q27P]

"We are prepared to deliver all the oil Belarus needs for its own market without duties," Russian Energy Minister Sergei Shmatko told reporters in Helsinki.

But analysts said Moscow had won the biggest concessions.

"On face value, Russia probably won this dispute, since Belarus wanted more oil exempt from export duties," said Chirvani Abdoullaev, senior oil and gas analyst at Alfa-Bank.

Belarus, which signed the deal as supplies to its two refineries slowed to a trickle [ID:nLDE60O2D8], must pay full export duties on the excess Russian crude it receives after paying only 35.6 percent last year.

These volumes are likely to exceed 14 million tonnes, most of which is refined and re-exported.

Several Russian traders said refinery runs in Belarus were almost certain to fall as a result. One trader said this could even force one of the two plants, Naftan or Mozyr, to close.

"Refinery runs will definitely come down. The refineries were only surviving on the low duties," one trading source said.

Belarussian state oil concern Belneftekhim declined comment.

CUSTOMS UNION

Belarussian First Deputy Prime Minister Vladimir Semashko was quoted by agencies as saying Russian oil refined in Belarus and returned to Russia for export would be exempt from duties.

Semashko, who attended the talks in Moscow, also said Belarus would forge ahead with plans to modernise its two refineries. "Under no circumstances will we slow the tempo of reconstruction," he said in a separate statement.

The dispute had the potential to flare up again, analysts said, as the planned customs union between Russia, Belarus and another ex-Soviet state, Kazakhstan, begins to take shape.

Russian traders, who met with customs brokers on Thursday, said they had received few clues on what action to take next.

"There is uncertainty about how the duty-free volumes will be spread throughout the course of the year, as January deliveries were imposed at 100 percent," one source said, adding that Belarus had not received any oil duty-free this month.

Russia had agreed to an 11 percent hike in transit fees on crude that crosses the territory of Belarus en route to Europe, Semashko was quoted as saying by Belarussian news agencies.

"It's a material shift in pricing terms. Essentially, it will help the Russian budget," said Lev Snykov, oil and gas analyst at VTB Capital in Moscow. "Russia is running the pipeline business, which helps in resolving these issues."

The deal might also give impetus to oil pipeline monopoly Transneft's (TRNF_p.RTS) project to build phase two of the Baltic Pipeline System, a 1,000-km (625-mile) route to the Baltic Sea that will bypass Belarus. [ID:nLA583453]

"Diversifying, hedging your bets, protecting yourself makes sense," Abdoullaev said. (Additional reporting by Andrei Makhovsky in Minsk, Terhi Kinnunen in Helsinki and Vladimir Soldatkin in Moscow; editing by Sue Thomas)

Source:

http://www.reuters.com/article/idUSLDE60R2RL20100128?type=marketsNews


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