Gazprom Cuts Gas Supplies to Belarus as Debt Talks Fail to Reach Agreement

OAO Gazprom reduced gas flows to Belarus, set to carry more than 20 percent of its Europe-bound exports of the fuel, after talks about unpaid gas supplies and transits failed.

Gazprom, the world’s biggest gas producer, began lowering deliveries by 15 percent at 10 a.m. today, Gazprom Chief Executive Officer Alexei Miller said on state television. As much as 85 percent of daily shipments may be halted, he said.

Russia supplies a quarter of Europe’s gas via Belarus and Ukraine. Gazprom threatened to cut supplies to Belarus in January 2007, averted by a last-minute accord that more than doubled the fuel price. Russia has also halted supplies to Ukraine, twice disrupting deliveries to Europe twice during freezing weather since early 2006.

“These cuts should not be felt as it is summer and Belarus is not a major transit route,” Karen Sund, founder of Oslo- based consultant Sund Energy AS, said. Any disruption may come as a relief to an oversupplied European market, she said.

Belarus pledged to settle its gas debt to Gazprom within two weeks as it may have to borrow, Interfax said, citing First Deputy Prime Minister Vladimir Semashko in Minsk, after the cut.

“No one will wait two weeks,” Sergei Kupriyanov, a Gazprom spokesman, said. “It’s clear 15 percent is only the beginning.”

Photographer: Alexander Zemlianichenko Jr/Bloomberg

OAO Gazprom chief executive officer Alexei Miller. Close

OAO Gazprom chief executive officer Alexei Miller.

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Photographer: Alexander Zemlianichenko Jr/Bloomberg

OAO Gazprom chief executive officer Alexei Miller.

Need to Diversify

Exports beyond Belarus shouldn’t be affected as Russia can boost flows via Ukraine and Poland, Sergei Kupriyanov, Miller’s spokesman, told reporters in Moscow. Pipelines have spare capacity on warm weather and a slump in southern European demand since May, slowing recovery from the economic crisis, Miller said June 19.

European Union officials don’t expect supply problems, Marlene Holzner, a spokeswoman, said in Brussels. Gas flows are “in line with the schedule,” Joanna Zakrzewska, a spokeswoman for Polskie Gornictwo Naftowe i Gazownictwo, Poland’s dominant gas company, said by phone from Warsaw.

The dispute proves the need for Europe to diversify its gas sources, RWE AG, Germany’s second-largest utility, said by e- mail. Storage is well-stocked, both RWE and E.ON AG said.

Supply disruptions during disputes with Ukraine in 2006 and 2009 led the EU to question Gazprom’s reliability and whether Russia’s use of energy in relations with Ukraine’s then government, which sought to join the North Atlantic Treaty Organization.

‘Constant Contact’

Belarus’s debt may rise to $251 million when the May payment comes due on June 23, from $192 million for January through April, Kupriyanov said. Belarus, demanding Russian prices, is paying $150 per 1,000 cubic meters of gas, compared with more than $184 now and a planned $193 to $194 in the third quarter, he said.

Gazprom owes Belarus a “comparable” debt for transit, after the country blocked payments this year by refusing to sign invoices, Kupriyanov said.

Vladimir Chekov, a spokesman for Beltransgaz, the country’s gas pipeline company, wasn’t available for comment.

Russian President Dmitry Medvedev ordered Miller to collect the debt in cash. “We can’t accept anything else: not pies, not butter, not cheese,” Medvedev said on state television.

Relations between Russia and Belarus are souring as a customs union yoking the two countries and Kazakhstan falters. Belarusian Premier Sergei Sidorsky boycotted a meeting with his Russian and Kazakh counterparts, Vladimir Putin and Karim Masimov, last month. Putin has said the troika will miss a planned July 1 start date, citing Belarus’s push for subsidized energy as a stumbling block.

Political Hostage

“Gazprom is a hostage to politics,” said Valery Nesterov, a gas analyst at Troika Dialog in Moscow. “The sides will come to a quick agreement.”

Putin in March pledged $4.2 billion in subsidies to Belarus this year through gas price discounts and tax-free oil. Gazprom also paid $625 million this year for 12.5 percent of Beltransgaz, boosting its stake to 50 percent.

Today, Putin ordered faster construction of gas storage in Kaliningrad, a Russian exclave bordered by the Baltic Sea, Poland and Lithuania, because of the dispute, Interfax said.

Gazprom, with partners including E.ON AG and Eni SpA, also plans to build pipelines to Europe bypassing Ukraine and Belarus.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

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