FACTBOX-Russia's relations with gas transit states

LONDON Tue Dec 23, 2008 1:30pm GMT

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LONDON Dec 23 (Reuters) - Russia holds the world's largest gas reserves and is the biggest gas exporter but tense relations with the states across which it pumps the fuel to western Europe have alarmed many customers over the last few winters.

The prices paid by some of Russia's neighbouring ex-Soviet states --Ukraine, Belarus and Moldova -- are much lower than those paid by western Europe. Moscow's attempts to make them pay more have met with strong resistance.

Russia expects its eastern European neighbours to be paying western European prices by 2011, coinciding with Russia's liberalisation of domestic gas prices.

But economic crisis, particularly in Ukraine which has seen its currency slump against the dollar over the last few months, has made it more difficult for transit states to settle their debts or pay more for future supplies. This has strengthened their determination to fight the increases.

The following is a summary of disputes and price negotiations and brief profiles of transit states.

UKRAINE

Russia supplies Europe with a quarter of its gas needs and 80 percent of this passes through pipelines across Ukraine.

Russian gas export monopoly Gazprom (GAZP.MM) said last week it would cut off supplies to Ukraine from January, when heating demand is highest, as Kiev was unable to meet its debts by the end of the year.

Gazprom said Ukraine had paid just $800 million of arrears of its debt for supplies out of a total of $2.4 billion and analysts say Ukraine's dire economic problems will make it very difficult to pay the rest back.

Ukraine has been charged $179.50 per 1,000 cubic metres (tcm) for its heating fuel this year, less than half the price paid by consumers in western Europe, but Gazprom has threatened to push up the price to $400 if arrears remain unpaid.

Ukraine has long haggled over how much it pays Russia for gas and the row came to world attention in January 2006, when it led to supplies to western European customers being halted.

In March 2008 Russia halved supplies to Ukraine, but reached agreement to restore flows of fuel and because the cut was in spring, not during the middle of winter, it did not affect supplies to western Europe.

Russia's differences with Ukraine have led it to propose two pipelines, the North Stream and South Stream, running north and south of the EU bloc, which would bypass current transit states.

BELARUS

Around 20 percent, or some 30 bcm a year, of the gas Russia exports to Europe passes through Belarus.

Belarus President Alexander Lukashenko failed on Monday to secure a firm promise of preferential gas prices from Russia in 2009 despite warning the Kremlin that undermining its ally's economy could backfire.

Low gas prices and financial help from Moscow are crucial for Lukashenko's efforts to keep afloat the economy of Belarus, a former Soviet republic that is Russia's partner in plans to build a Slav "union state".

Belarus officials had said, before Lukashenko held talks with Russian President Dmitry Medvedev, that they were counting on a price of $160 per 1,000 cubic metres of Russian natural gas in 2009 compared with the current rate of $128. Russian officials have suggested the price will be no less than $200.

Gazprom has traditionally charged Minsk the lowest price of any of its foreign customers and any signs it would raise prices have been opposed by Lukashenko.

The Druzhba (Friendship) pipeline also carries Russian oil through Ukraine and Belarus on to Europe.

During a pricing dispute with Russia in January 2007, oil shipments through Belarus were halted for three days.

POLAND

Poland is a major transit country for Russian oil and gas exports to Europe. Both the Druzhba and the Yamal-Europe gas pipeline pass through Poland from Russia via Ukraine and Belarus.

Along with other transit states, Poland is opposed to the Russian-German Nord Stream link, which will take Russian gas directly to Germany under the Baltic Sea, partly because it fears it would become vulnerable to being cut off from Russian supplies.

Earlier this year, Polish Prime Minister Donald Tusk suggested to Russian President Vladimir Putin that an alternative land route should cross its soil in place of the Nord Stream.

Last year Poland rejected a demand by Gazprom for it to lower its fees for pumping Russian gas across Polish territory to Europe.

TURKEY

Following various disagreements with Russia, Turkey has looked to diversify its import sources and has ambitions to be an energy hub, rather than a transit nation for Russia.

Turkey's state-owned Botas is part of a consortium led by Austria's OMV (OMVV.VI), which wants to build the U.S. and EU-backed Nabucco pipeline that would transport gas from Azerbaijan through Turkey and on to Europe, reducing dependence on Russia.

Currently, the Blue Stream natural gas pipeline connects the Russian system to Turkey.

Russia, with Italian oil company Eni (ENI.MI), has a project to extend the Blue Stream pipeline to southern Europe through Turkey. It will also jointly operate with Eni the South Stream link, which would bypass Turkey.

(Compiled by Daniel Fineren, editing by Anthony Barker)

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