BELARUS NEWS AND ANALYSIS

DATE:

28/12/2006

Gazprom, Belarus Talk to Avoid Cut in Europe's Gas

By Lucian Kim

Dec. 28 (Bloomberg) -- OAO Gazprom, Russia's natural-gas export monopoly, is in talks with Belarus to avoid a possible Jan. 1 halt in shipments that would cut deliveries to Europe for the second time in a year.

Gazprom wants Belarus to surrender half its pipelines in return for a gradual rise in prices to European levels over four years. Belarusian negotiators, who want Gazprom to pay cash for the stake in pipeline operator Beltransgaz, walked away from talks on Dec. 26.

``Talks are continuing by telephone,'' Gazprom spokesman Sergei Kupriyanov said in a phone interview today from Moscow.

Belarus will block transit of Russian natural gas through its territory beginning Jan. 1 if the two sides fail to resolve the dispute, Belarusian Prime Minister Sergei Sidorsky said on state television today, Agence France-Presse reported.

Gazprom is threatening to cut supplies to Belarus Jan. 1, reminiscent of a shutoff to Ukraine earlier this year that caused gas volumes to drop across Europe. While the Ukraine cutoff was criticized in Europe, state-run Gazprom is getting its way because of the continent's growing reliance on Russian oil and gas.

``Belarus is trying to play the Ukraine game,'' said Chris Weafer, chief strategist at Alfa Bank in Moscow. ``It will not be seen as a victim but as an irritant. Politicians in Brussels will sleep better if Gazprom is in control of gas transit through Belarus.''

`Belarus Blackmail'

Belarus is ``blackmailing'' Europe and Russia by threatening to tap into natural gas shipments crossing its territory, Gazprom Deputy Chief Executive Officer Alexander Medvedev said today in a pre-recorded video.

Belarus's position hasn't changed, Interfax reported from Minsk, citing an unidentified official from the Belarusian Energy Ministry.

Belarus is prepared to pay no more than $75 in cash per 1,000 cubic meters in 2007, up from $46.68 this year.

Gazprom is insisting on a price of $105 per 1,000 cubic meters, which includes $30 in Beltransgaz shares. The cash portion of payments would gradually increase until they correspond to European prices by the end of 2011.

European Energy Commissioner Andris Piebalgs called on the sides to reach ``a satisfactory agreement as soon as possible.''

Gazprom's Position

Gazprom has been using its unrivaled position as Europe's main energy supplier to dictate new terms.

In October, Gazprom scrapped a tender to attract European and U.S. equity partners to its $20 billion Shtokman field in the Arctic. Gazprom said the company would develop the project on its own and use Shtokman gas to fill the Nord Stream pipeline.

Nord Stream, which Gazprom is building with E.ON AG and BASF AG, will connect Russia directly to Germany via the Baltic seabed, circumventing transit countries like Belarus and Ukraine.

Earlier this month, Gazprom reached an agreement to take a controlling stake in Royal Dutch Shell Plc's Sakahlin-2 project, after government inspectors criticized the project for alleged environmental violations.

Gazprom also gained access to European consumers in Italy, France and the U.K. this year.

Europe, which depends on Russia for a quarter of its gas needs, receives one-fifth of its gas through Belarus. The rest moves through Ukraine.

``Gazprom will do everything necessary to secure the full volume of its deliveries to European customers through Belarus,'' Kupriyanov said in an e-mailed statement.

Looming Crisis

The looming crisis with Belarus is not analogous to the cutoff to Ukraine, he said. The Yamal-Europe pipeline running through Belarus was built after the collapse of the Soviet Union and belongs entirely to Gazprom, Kupriyanov said.

The total volume of 2006 transit shipments through Belarus is 30 billion cubic meters of gas, about half of which travels through Yamal-Europe and half through Beltransgaz pipelines, Kupriyanov said.

``The conflict will not have any impact on Ukrainian or European consumers,'' Ukrainian Energy Minister Yuriy Boyko said on his Web site. ``We will be able to increase gas transit via Ukraine by those volumes required.''

Because Belarus is run by President Alexander Lukashenko, whom U.S. Secretary of State Condoleezza Rice called ``Europe's last dictator,'' the EU is unlikely to rush to defend the country's interests.

``Belarus is like a nagging toothache; at some point you have to deal with it,'' Weafer said. ``Europe actually wants Russia to reassert control over Belarus to help secure energy supplies.''

Source:

http://www.bloomberg.com/apps/news?pid=20601100&sid=aSo1lteTsZyQ&refer=germany