Gazprom, Belarus Poised to Avoid Cut-Off of Gas Supplies on New Year's Day

OAO Gazprom, which supplies a quarter of Europe’s gas, will probably avoid the disruptions to deliveries that arose at the start of previous years because of disputes with Ukraine and Belarus.

“At least as of today we have agreements with all our key partners,” Russian Prime Minister Vladimir Putin said on Dec. 29. “Existing contracts that are signed and have been fulfilled so far.”

Ties between Russia and Belarus have recovered after the Russian government agreed to guarantee duty-free oil to its former Soviet neighbor earlier this month. Belarus President Aleksandr Lukashenko, whose regime was dubbed “the last dictatorship in Europe” by the U.S., later won re-election in a Dec. 19 vote marred by a violent crackdown on the opposition.

Russia, which holds the world’s biggest gas reserves, has had repeated pricing disputes with the neighboring countries. Belarus transports about 20 percent of Gazprom’s Europe-bound gas, and Ukraine moves the rest. Gazprom, the state-run export monopoly, cut deliveries to Ukraine twice on New Year’s Day in the last five years, leading to supply disruptions in Europe.

Gazprom reduced supplies to Belarus by as much as 60 percent in June, briefly affecting the flows to the EU member Lithuania. On Dec. 31, 2006, the Moscow-based gas supplier and Belarus averted a supply cut with a last-minute contract.

Russian Prices

Belarus, a member of a customs union with Russia and Kazakhstan, is bargaining for a lower price next year, seeking the same price for gas that domestic Russian consumers pay.

Belarus aims to agree on a revised price for Russian natural gas within two months and doesn’t expect problems with supplies on Jan. 1, Interfax said yesterday, citing First Deputy Prime Minister Vladimir Semashko. Belarus’s first payment for 2011 shipments is due in February, Semashko said.

“There will be a discount, it is a normal process of negotiations,” Alexander Nazarov, a senior oil and gas analyst at IFC Metropol, said. “For Belarus it is an issue of survival and normal functioning of the country, especially in the winter period.”

Gazprom has said it plans to stick to the existing contract with Belarus signed at the end of 2006, which sets discounts that end this year. The contract runs through next year.

No Meetings

“We have a contract, we are working within it,” Gazprom spokesman Sergei Kupriyanov said. Chief Executive Officer Alexei Miller doesn’t have any meetings scheduled with Belarus this week, he said.

Prices for Belarus may be reduced by 15 percent in 2012, RIA Novosti reported last week, citing Deputy CEO Valery Golubev. Preliminary talks on a new accord are being held but work on the contract will be done next year, Kupriyanov said.

The Russian gas producer, struggling to increase exports to Europe after the global crisis, has relied on domestic consumption and higher demand from the former Soviet republics, Nazarov said.

“Belarus and Ukraine were real steady sources of growing demand for gas,” he said.

Russia in April reached an agreement with Ukraine that slashed the price the country pays for gas by 30 percent in exchange for a 25-year extension of the Russian navy’s lease at a Black Sea port in the neighboring country.

Energy Costs

Ukraine, which needs to cut energy costs as it complies with a $15.2 billion International Monetary Fund loan agreement, is seeking a lower gas price from Russia and changes to the underlying accords, Prime Minister Mykola Azarov said on Dec. 27. Russia and Ukraine will find a solution, he said.

Gazprom’s exports to the EU are at the same level this year as last year, about 140 billion cubic meters, Interfax reported on Dec. 28, citing Kupriyanov. Gazprom sold 42 percent more gas to Ukraine over the first nine months than in the same period of 2009, according to the company.

Higher sales in Ukraine reflect the volumes that were cut during the January 2009 standoff, which lasted at least two weeks, and the price discount granted to Ukraine this year, Nazarov said.

Volumes to Belarus rose 32 percent over nine months, Gazprom said in its quarterly reports.

“There won’t be a conflict or disruptions,” Nazarov said. “There will be loud rhetoric.”

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

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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