June 22, 2010 / 12:32 PM / 9 years ago

Belarus cuts Russia gas transit

MINSK (Reuters) - Belarus moved to cut the transit of Russian gas to Europe on Tuesday in a debt spat with Moscow, while President Alexander Lukashenko said the two countries faced a “gas war,” an echo of Russia’s 2009 quarrel with Ukraine.

Ukraine in turn promised to ship more Russian gas to Europe to help Moscow plug the potential gap in a move showing Kiev’s commitment to further improve ties with Russia and persuade Moscow not to build new pipelines to bypass Ukraine.

Russia, the world’s largest energy exporter, supplies Europe with 25 percent of gas needs, with four fifths of those volumes flowing via Ukraine and one fifth via Belarus.

“I would like to inform you about the conflict which is turning into a gas war,” Lukashenko told a meeting with Russian foreign minister Sergei Lavrov.

Russia’s gas export monopoly Gazprom has said Belarus had amassed a debt of $192 million for gas deliveries since January and on Tuesday doubled gas supply cuts to Belarus to 30 percent of normal volumes.

Belarus for its part says Gazprom owes it $260 million for gas transit but Gazprom says Minsk had blocked payments.

“I ordered to the government to cut the transit via Belarus until Gazprom pays for transit,” Lukashenko said.

“I have borrowed this money from my friends and we will redeem it to you in the near future,” Lukashenko told Lavrov. “We owe nothing to Gazprom, they owe us... $260 million for transit,” he added.

Close ties between neighbours Russia and Belarus have been increasingly strained as Lukashenko has sought to use Russia’s eagerness to maintain an ally on its Western flank to persuade Moscow to leave Soviet-style economic subsidies in place.

Relations between the two states have also soured since they failed to agree on unified customs rules and Belarus gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev, despite Moscow’s support for the new Kyrgyz leadership.

Belarus pays the lowest price among Russian gas customers and has bridled at recent increases, saying it should pay less for oil and gas if Russia is serious about close relations.

Gas cuts could hurt Russia’s already frayed reputation as a source of energy.

“The gas conflict will lend more political weight to promoters of Europe’s numerous liquefied natural gas and gas pipeline projects that will compete with Gazprom,” said Oleg Maximov from Troika Dialog brokerage.

UKRAINE OFFERS HELP

The European Union said it expected all gas contracts to be honoured while analysts said they anticipated the damage from any cuts to be minimal because of low European gas demand.

“We believe that at this stage... a prolonged conflict is unlikely, given the relatively small amount allegedly overdue and Belarus’s need to re-fill storage during the low consumption season,” said Lev Snykov from VTB Capital.

Previous pricing disputes with Minsk led to supply cuts, with Poland and Germany being affected most. Poland gets about 40 percent of its Russian gas through Belarus.

A similar standoff with Kiev halted the much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a cold snap.

Relations between Russia and Ukraine have improved since the arrival of pro-Moscow leadership in Kiev earlier this year.

Russia and Ukraine have had two major gas face-offs since 2005 amid strained political relations between the Kremlin and Ukraine’s former pro-Western President Viktor Yushchenko.

Bilateral ties have dramatically improved since Yushchenko lost an election to Viktor Yanukovich, seen as much more loyal to Moscow after he agreed new gas and military base deals with the Kremlin earlier this year.

Gazprom has said it was working on new alternative routes to deliver gas to Europe and Ukrainian Premier Mykola Azarov said on Tuesday his country was ready to boost Russian gas transit.

“We certainly are able to transit additionally 15-20-30 billion cubic metres of gas (a year),” Azarov said. “If it becomes necessary, Ukraine’s gas transportation system will first of all implement agreements on supplies to Europe.”

Germany’s gas supplier E.ON Ruhrgas and utility firm RWE said on Tuesday there were not affected by the row.

The shares of Gazprom eased to trade 2.3 percent down, underperforming the braoder Russian market.

Prices in European gas markets were softer on Tuesday, in contrast to a sharp rise in prices seen during Russia’s rows with Ukraine in 2009.

Additional reporting by Vera Eckert, Writing by Dmitry Zhdannikov; Editing by Keiron Henderson

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