Gazprom Cuts Supplies to Europe :: Charter'97 :: News

Gazprom took the unprecedented step Wednesday of cutting all gas supplies to Belarus and via its territory to Germany and Poland, a hardball move in a conflict over prices and pipelines that is likely to seriously rock relations between Moscow and Minsk.

Gazprom said it was forced to block the Belarus transit route because Belarus had started siphoning off gas from its export pipeline into Europe. The alleged theft came after Minsk failed to clinch a new deal on gaining its own domestic supplies amid an escalating price dispute with Gazprom.

Gazprom supplies one quarter of all Europe`s gas needs. About 17 percent of that amount, or 22 billion to 24 billion cubic meters, is supplied via Belarus. Poland has enough stored gas and alternative supply sources to keep going without any problems for several weeks, while Germany has enough for many months, analysts said. Gazprom said it could compensate for the loss by using reserve capacity in its pipelines into Europe via Ukraine, but only partly. It would not specify how much.

"Belarus began siphoning off gas from transit pipelines. There is no longer any gas going into Belarus, or to Germany or Poland via Belarussian territory," Gazprom spokesman Sergei Kupriyanov said Wednesday evening. He said the gas was cut off at 6 p.m. and could not say when it would be switched back on. "We are in a very complicated situation that has been totally provoked by Belarus because it will not enter into normal, transparent relations for the transit of gas. The situation is very unpleasant. But it is just impossible to supply more gas via Belarus."

Gazprom released a statement a few minutes later blaming Belarus for having to break its contracts with its European partners. "Responsibility for Gazprom`s breach of contract with its foreign consumers lies fully on the Belarussian side," it said.

Gazprom could face fines and penalties from its clients if it fails to deliver volumes promised in long-term contracts, but analysts said the buyers were not likely to take action against Gazprom for some time and were likely to side with Russia in blaming Belarus. A spokesman for Ruhrgas, the German gas giant that is one of Gazprom`s major clients and a shareholder in the company, said it was not affected yet by Wednesday`s cutoff. "At this point we are not concerned. We get over 90 percent of our Russian gas supplies through the route that goes through Ukraine," the spokesman, who spoke on condition of anonymity, said by telephone from Essen, Germany. He added that he could not comment on Russia`s relations with Belarus.

The Belarussian government held an urgent meeting to discuss the gas-supply interruption, Channel One television reported. A spokeswoman for Belarussian President Alexander Lukashenko said by telephone from Minsk that the government had no immediate comment.
A representative of the Russia-Belarus Union, however, lashed out at the decision as blackmail. "This is political and economic blackmail capable of dealing a serious blow to relations between Russia and Belarus and to the building of our union," said Alexei Vaganov, the deputy head of the Russian-Belarussian parliament`s budget committee, Interfax reported.

Minsk residents on Wednesday night were not aware of Gazprom`s decision and the threat of a looming gas shortage, Channel One said.

A Belarussian gas official insisted that households would not suffer. "People have absolutely nothing to worry about. ... We will match demand in full," Vitaly Khlopenyuk, the head the gas supplies department of Minskgaz, a local gas distribution company, told Channel One. "But, yes, many industrial enterprises could get cut off," he added.

Belarus only has enough gas in storage to last 10 days without new supplies, and 15 to 20 days if it makes energy cutbacks -- leaving it no choice but to find a compromise with Gazprom, said Valery Nesterov, oil and gas analyst at Troika Dialog. "I am sure this will be resolved in less than a week, because otherwise there will be a political scandal and Belarus` neighbors in Poland and Germany will start to put international pressure on Lukashenko as well, " Nesterov said.

"Gazprom also is not interested in this conflict going for a long time. It has promised stable supplies to its European partners," he said. "This is a measure to make sure Belarus understands the seriousness of [Gazprom`s] intentions."

But Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said the standoff may have already provoked new doubts about the stability of Russian gas supplies. "The really bad thing about the whole episode is that now there is huge doubt in the minds of everyone as to whether [Russia`s] transit countries can be trusted," Stern said. "Now that Belarus has been found to be up to the same as Ukraine, that`s very serious. If there is no stability between Russia and the transit country, there is a question about the security of supplies. We had hoped relations had stabilized."

Most of Gazprom`s shipments to Europe go via Ukraine. But Gazprom started shifting some supplies via Belarus by building the Yamal-Europe pipeline several years ago, a move that came as an attempt to ensure stable supplies at a time when Gazprom was accusing Ukraine of siphoning off gas.

Nesterov said Germany has enough underground storages and alternative suppliers in Denmark, Norway, the Netherlands and Britain. It receives 35 bcm of gas from Gazprom, almost 40 percent of its total gas supplies, and most of that is through Ukraine, he said.

Poland, however, could have more difficulties. Gazprom supplies 7.4 bcm per year -- nearly 80 percent of its annual needs -- and most of that amount goes through Belarus, Nesterov said. The alternative suppliers for Poland are Ukraine and Germany, and both of those countries currently supply only a small amount. "Poland is probably the most serious case," Stern said. "If this lasts a few more weeks and the weather stays cold, then it could get serious."

Gazprom stopped shipping gas to Belarus in January after Minsk refused to agree to a price hike from $30 per thousand cubic meters last year to $50 per thousand cubic meters, an increase that would have drawn the tariff in line with domestic Russian prices.

In the meantime, independent suppliers Trans Nafta and Itera moved to fill the gap, agreeing to supply gas at $46.60 per thousand cubic meters. But neither supplier can fully meet Belarus` annual gas needs, and each signed a series of short-term contracts. Last year Belarus imported 18.5 bcm, 10.2 bcm of which came from Gazprom.

The gas standoff escalated Wednesday when Belarus` only remaining supply contract, with Trans Nafta, expired at 10 a.m. and the two sides were unable to reach agreement on the next contract. This left Belarus without any new source of supplies and Gazprom with an excuse to turn off the pipeline.

Kupriyanov, the Gazprom spokesman, said his company believes Minsk started to siphon off gas from its export pipeline in exact proportion to the amount it lost in the Trans Nafta contract.

The conflict also centers around the possible sale of Belarus` pipeline company, Beltransgaz, to Gazprom. In an intergovernmental agreement signed last year, Russia and Belarus decided that Gazprom would set up a joint venture to run Beltransgaz in return for keeping Belarus` gas prices at the same level as domestic Russian prices. That deal, however, stalled because the two sides failed to agree on a price. Belarus values Beltransgaz at $5 billion, while Gazprom values it at $600 million.