BELARUS NEWS AND ANALYSIS

DATE:

28/12/2006

Every Pipe Has Two Ends

In response to Gazprom, Belarus will stop transport

Gazprom head Alexey Miller has officially named the date and time when Belarus's gas will be cut off: 10:00 a.m. Moscow time (9:00 Minsk time), January 1, just as with Ukraine a year earlier. Minsk announced in response that Gazprom will not have a contract for the transport of gas across Belarus, and it will be contraband. Poland, Lithuania and Kaliningrad region are making their own preparations for the shutoff. Ukraine held out only three days under gas blockade. Belarus hopes to last two weeks with problems.

"If the contract for gas supplies for next year will not be concluded, Gazprom will have no grounds for supplying gas to Belarus after 10:00 in the morning Moscow time, January 1, 2007," Miller stated yesterday. Gazprom announced at the same time that it had sent its partners in Lithuania, Poland and Germany "informational letters about how the situation with gas supplies to Belarus was developing." Thus the monopoly has warned its partners of possible unauthorized bleeding of the gas line by Belarus.

Gazprom's position elicited a sharp response from Belarus. Belarusian First Deputy Prime Minister Vladimir Semashko stated on his return to Minsk from unsuccessful negotiations in Moscow on December 26 that "we categorically object to a gas price of $100 per 1000 cu. m. for Belarus." He explained that he was counting on signing a framework agreement with Gazprom on Tuesday under which Belarus would found a joint venture around Beltransgaz before July 1, 2007. "Having received $2.5 billion for a package of 50 percent of the shares [in Beltransgaz] from Gazprom, we have the right to place it in the gold and currency reserves or the stabilization fund," Semashko said, adding that Minsk was prepared to pay $75 per 1000 cu. m. That did not satisfy Moscow, however, which was expecting to include the cot of its half of Beltransgaz in the gas price and receive $80 per 1000 cu. m. in cash. "Gazprom not only would not receive the money for the gas supplies, it would give Belarus more than $1 billion. Gazprom is not Santa Claus to give such gifts to the Belarusian authorities," official Gazprom representative Sergey Kupriyanov said yesterday.

Belarusian authorities took a no less strict position. "We have no contract for the supply of gas, and Gazprom has no contract for the transport across Belarus in 2007 of 44 billion cu. m. of gas," noted Semashko. Belarusian Deputy Minister of Fuel and Energy Eduard Tovpenets added that "the transportation of natural gas without a contract violates the laws of Belarus." Minks thus has warned Moscow that, after January 1 it will consider Russian transport gas contraband.

Gazprom supplied 44 billion cu. m. of gas through Belarus in 2006 and another 20 billion cu. m. for the needs of that country. If the monopoly cuts the gas to Belarus off, the Beltransgaz system will be most effected. Fourteen billion cu. m. of transit gas will be pumped through it this year. The rest of the gas traveled through the Russian Yamal-Europe trunk line. Technically, Belarus will only be able to redirect gas from the Beltransgaz system to the domestic market. However, three of the five Yamal-Europe compressor stations serve both systems. That means that, even without unauthorized rechanneling of the gas, Belarus can stop those stations and significantly reduce the pressure in the pipeline. Then Gazprom will be unable to pump the necessary volume of gas to Europe through the Yamal-Europe pipeline.

Gazprom confirmed earlier that it has negotiation with Ukraine to increase transport across its territory in case supplies to Belarus are reduced. But the capacity of Ukrainian pipelines does not allow for a significant increase in transit from the current 123 billion cu. m. per year. According to information received from a Gazprom source, additional gas was pumped into underground reservoirs in Germany and Latvia, but there is a technical problem with it. The compressor stations in Poland are not designed for large reserves and it will be impossible to pump the gas from Germany in the necessary volumes. At Gazprom, they were unable to state the volume of gas reserves in the underground reservoirs in Germany and Latvia. Belarusian Deputy Prime Minister Semashko said that the reserves were "enough for 12 or 13 days."

The countries neighboring on Belarus are making preparations for the solution of the gas supply problem. The Polish gas concern PGNiG stated that the country was to handle a gas shortage. "A significant part of the import comes through Ukraine," company spokesman Tomasz Fill told the newspaper Rzeczpospolita. "It is a matter of 2.8 billion cu. m. out of the 6.8 billion cu. m. that we buy from Russia. A third of the demand is met by production within Poland itself." Fill specified that there are still 1 billion cu. m. of gas in underground reservoirs in the country. Viktoras Muntianas, speaker of the Lithuanian Seimas, said that Lithuania has a "backup," in gas that will be supplied from reservoirs in Latvia. But, Kommersant has learned, the compressor station on the border of Lithuania and Latvia is only capable of pumping 5 million of the necessary 15 million cu. m. per day. Alexander Pospelov, director of the Kaliningrad department of the trunk line, told Kommersant that "nothing will happen" in Kaliningrad if gas supplies to Belarus are cut off. He was unable to say, however, what would be used as a substitute for that gas.

In Belarus, they are convinced that they can withstand a much longer gas blockade than Ukraine did a year ago. That country signed a contract with Gazprom on January 4, exactly three days after the gas was shut off. A source in Belenergo electric company told Kommersant that all the large electricity generating stations in Belarus were being prepared to run on heating oil. "Now we are flushing out the pumps and heating oil pipelines that lead to smaller stations. Heating oil reserves in the electric system exceed the norm by 400,000 tons, which is enough to last more than two weeks," the source stated. That will not be much comfort for the Belarusian chemical plants that use gas as a raw material, however.

In spite of the fact that the gas war has now been officially declared and the first shots fired, both sides are still making their arguments. Gazprom recalled yesterday that gas for Belarus is not subject to the export duty, which is equal to 30 percent of the value of the contract. The company said it would ask the government to impose that duty, which will increase the price of gas to Belarus even more. Vladimir Semashko warned of possible price hikes for the transit of gas across Belarus. It is now the lowest fee in the CIS at $0.75 per 1000 cu. m. per 100 km. Belarus, unlikely Ukraine, has not ratified the European Union Energy Charter, although it signed it in 1998. Therefore, Minsk can set any fee it wants for gas transport. Other transit countries have already taken advantage of that option. Georgia, for which Gazprom raised the price of gas to $235 per 1000 cu. m., charges a fee of $8 per 1000 cu. m. per 100 km. for gas transport.

Natalia Grib; Vladimir Vodo, Vilnius; Alexey Milovanov, Kaliningrad

Source:

http://www.kommersant.com/p733628/Gazprom_Belarus/