Russia looks to bypass, buy into gas transit states - extended

Energy Trade

Tension between Russia and Belarus over a $500 million unpaid gas bill is another reminder - should Moscow need one - that it would do without such energy transit nations if only it could. Gazprom said Wednesday it would reduce natural gas deliveries to Belarus by 45% from August 3 over outstanding payments, adding that Europe-bound supplies would not be affected. 

The world’s leading gas producer and exporter and second largest exporter of oil after Saudi Arabia has made clear its preferred strategy is to transport its precious resources either across its own territory or through infrastructure it owns.

Russian President Vladimir Putin has branded as parasites the transit states that have secured energy at cheap rates and even siphoned it off for free, according to Russia, but to an extent the relationship is one of mutual dependency. “They can’t do without transit states, they have to come to terms with them. What they can do and will do is progressively diversify the transit countries on which they depend,” said Jonathan Stern of the Oxford Institute for Energy Studies. “It (Russia) has options for reducing its dependence..., but it’s quite difficult for it to remove entirely its dependence on Ukraine and Belarus,” said Tim Lambert of Wood Mackenzie.

Talks on Monday between Russia and Belarus on how Belarus might cover it s gas debts ended without a result. Analysts said Russia could be trying to cement its position by, for instance, acquiring a bigger share of the Belarusian transport network. “That would be totally consistent with its policy,” said Niall Trimble of the Energy Contract Company. They have got a strong market position and they’re intent on using it. When Belarus yielded to a price increase in January, it also agreed to sell to Russia’s Gazprom a 50% stake in state-run Belarusian firm Beltransgas, which controls the local pipeline network. Gazprom already owned all of Belarus’ transit pipelines. “It’s very clear. If you give them equity, they will use your transportation route, if you don’t, they will find some other route,” Stern said. “In fairness to Russia ... This (energy) is not something they want to take risks with.” Around 20% of Russia’s gas exports to Europe pass through Belarus. The rest goes through Ukraine, whose bigger share of Russian exports makes it far harder to bypass. Ukraine has long haggled over how much it pays Russia for gas. The row came to world attention in January 2006 when it led Gazprom to halt supplies and exports to Europe, which relies on Russia for some 25% of its gas, were also affected.

Russia, meanwhile, has launched a proposal for a northern route, the Nord Stream, under the Baltic Sea to Germany, which would bypass Ukraine as well as various other transit nations. Gazprom has a majority stake in the pipeline and Germany’s BASF and E.ON have minority stakes. Together with Italian oil company Eni, Gazprom is also involved in a 50/50 joint venture to build the South Stream pipeline to take Russian gas under the Black Sea to Europe. In addition, it has backed plans to extend to Europe the Blue Stream pipeline, which transports Russian gas beneath the Black Sea to Turkey.

Such routes rival the Nabucco project, headed by Austria’s OMV, which aims to cut Europe’s dependency on Russia. With both sides seeking room for maneuver, the Russian-backed attempts could have the best chance of success. A number of factors are stacked against Nabucco in the scramble for available gas, said Mark Rowley, an oil and gas lawyer at Baker Botts’ London office. The South Stream pipeline and proposed extension of Blue Stream are both backed by Russian gas producers with available gas to transport. No matter how much Russia can increase its network, the optimum solution would be to avoid pipelines altogether.

Minsk owes Russia over $450 million for natural gas supplied in the H1 of the year, and Gazprom said Belarus had not provided any guarantees that the debt would be repaid. “In line with the contract, the daily volume of natural gas delivered to Belarus will be cut by 45% in proportion to actual payments from 10.00 a.m. on August 3,” the company said. The company has officially informed Beltransgaz of the move, and Belarusian Energy Minister Alexander Zhukov said the government is drafting proposals to rectify the situation. “The Belarusian side will spare no effort to resolve the situation and prevent cuts in Russian natural gas deliveries to Belarus,” he said. Beltransgaz is to guarantee uninterrupted transit to European consumers who have also been informed of the steps. “Gazprom will do everything possible to ensure Russian natural gas is transported through Belarus in full compliance with current commitments to European consumers,” Gazprom said. (,

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