BELARUS NEWS AND ANALYSIS

DATE:

12/10/2007

Nothing good will come of Baltic pipeline-Belarus

By Andrei Makhovsky

MINSK, Oct 12 (Reuters) - Belarus told Russia on Friday that it was making a mistake to build a gas pipeline under the "minefield" of the Baltic Sea, and offered tax breaks instead to increase pipeline gas flows across its own territory.

"Why have you decided to go under the Baltic? Don't you remember I told you that nothing good will come of this?" President Alexander Lukashenko told a meeting with journalists broadcast on state radio.

"Today you not only face (problems on the) seabed, but also with mines and bombs from World War Two. Why are you laying a pipeline on minefield?" he said.

Russia's gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research) has teamed up with Germany's E.ON (EONG.DE: Quote, Profile, Research) and BASF (BASF.F: Quote, Profile, Research) to build the Nord Stream link, which will pump 27.5 billion cubic metres of gas a year under the Baltic to Germany from early next decade.

Gazprom has said the 5 billion euro ($7.1 billion) link will improve Europe's energy security, which has been hit over the past two years by Russian gas supply cuts to Ukraine and a stoppage to oil supplies to Belarus over pricing disputes.

A quarter of Europe's gas needs is met by Gazprom, which pumps exports across the territory of Ukraine and Belarus. Russia also supplies one tenth of Europe's oil needs via the Druzhba pipeline which traverses Belarus.

Nord Stream decided in August to re-route the pipeline around Denmark to stay further away from known World War Two munition dump sites, but Lukashanko said the link also made no sense from an economic point of view.

He said Russia should instead double the capacity of the Yamal-Europe gas link, which delivers around 30 bcm of gas a year to Germany and Poland via Belarus.

"Here is the pipeline and its foundations, which are made of concrete and metal, and can hold two pipelines. All pumping stations can serve two pipelines," said Lukashanko, the outspoken leader of the isolated ex-Soviet state of 10 million.

"If you are afraid that it is going be too expensive, we will give you tax and fee breaks on gas transit for five years. Just don't do stupid things!".

STIFFLING COMPANIES

Gazprom has said the chances of doubling the capacity of Yamal-Europe were slim given low demand growth in Poland.

This year, Gazprom also raised the idea of building a link under the Black Sea to southern Europe in a move to further diversify away from Ukraine and Belarus.

Russian oil pipeline monopoly Transneft (TRNF_p.RTS: Quote, Profile, Research) is in turn considering fully shutting down Druzhba, which pumps 1 million barrels per day, and expanding its Baltic Sea port of Primorsk, forcing Poland and Germany to buy crude in tankers.

But Lukashenko said Russia would lose up to $2 billion a year as the new route would be $30 per tonne more expensive than Druzhba. Minsk would in turn lose only the $100 million it is getting in transit fees.

"Tell me which (Russian) company will be willing to choose this route instead of the existing pipeline if only not being stifled (by the government)," he said.

Source:

http://uk.reuters.com/article/oilRpt/idUKL1242150520071012