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. Last Updated: 07/27/2016

Gazprom to Halve Gas Supply to Belarus

APA Belarussian worker checking a compressor in the Beltransgaz system.
Gazprom said Wednesday that it would cut natural gas supplies to Belarus by almost half after Minsk failed to honor a gas debt, creating a scare in European countries that their energy supplies could again suffer.

Following a breakdown in talks earlier this week over a loan to help Belarus cover the debt, Gazprom said it would cut supplies by 45 percent beginning Friday. It insisted, however, that the move would not affect European customers.

The European Union, for whom the announcement was a sharp reminder of previous oil and gas disputes, said Wednesday that it considered the situation serious and expressed hope the dispute would be resolved swiftly.

Belarus, a key transport link between Gazprom and its European customers, owes the state-owned giant $456 million for gas deliveries. There was little official reaction from Belarus on Wednesday.

"Nobody should suffer. Beltransgaz should see to that," Gazprom spokesman Sergei Kupriyanov said, referring to the Belarus gas pipeline monopoly.

The 45 percent cut in supply was equal to the shortfall in Belarus' payments, Gazprom said.

Kupriyanov described the move as a "purely routine operation," adding that it was a different case from last year, when Gazprom cut shipments to Belarus after a supply contract expired.

Gazprom notified Belarus of the decision by telegram Tuesday and also sent notices to European partners like Poland and Lithuania, company spokeswoman Tatyana Golubovich said.

The warning concerning the cuts came after Prime Minister Mikhail Fradkov and his Belarussian counterpart, Sergei Sidorsky, failed to reach agreement earlier this week on a loan to help Minsk cover the bill of $456 million it has run up since Gazprom began charging the country a higher price at the start of the year. The deadline for payment passed on July 23, touching off the latest round of negotiations.

At the beginning of the year, Gazprom raised prices for Belarus to $100 per 1,000 cubic meters from the heavily subsidized previous price of $46. The price would have been even higher had Belarus not agreed to sell Gazprom a 50 percent stake in Beltransgaz for $2.5 billion. Gazprom has so far paid $625 million for 12.5 percent of the pipeline company, a payment it says provides Belarus with the ability to pay off its gas debt. Minsk maintains that the money will be used to develop the Belarussian economy.

The European Union on Wednesday expressed concern over the standoff and said it hoped the situation would be normalized as soon as possible.

"We take these developments absolutely seriously," European Commission spokesman Martin Selmayr said by telephone from Brussels.

The commission, which is the European Union's executive, is prepared to call a meeting of gas-supply experts, if need be, and will decide on what moves to take within the next few days, he said. It is now in touch with all parties, including Belarus, Poland and Lithuania, to make sure EU members Poland and Lithuania are not affected by looming supply cut, Selmayr added.

Gazprom's Polish client, PGNiG, received official notification Wednesday and was assured that the Russian gas monopoly would honor its commitment to European buyers, company spokesman Tomasz Fill said.

"PGNiG believes that the supplies for Gazprom's European clients will be provided on a timely basis and for fixed quantities, in accordance with contractual commitments," he said in an e-mailed response.

Last year, Gazprom sold PGNiG 6.8 billion cubic meters of natural gas, 3.8 bcm of which came via Belarus, according to data from PGNiG.

GasTerra, the European Union's second-biggest natural gas exporter, said the decision to reduce shipments to Belarus would not disrupt European supplies, GasTerra spokesman Ben Warner was quoted as saying by Bloomberg.

During similar cutoffs in the past, Europe has suffered falls in supply, which Gazprom charges was due to the siphoning off of gas from transit pipelines by Belarus and Ukraine. Both countries have denied any wrongdoing.

Gazprom said during a conference call later Wednesday that it had a contingency plan if Belarus starts diverting gas.

"Should Belarus start the illegal offtake of gas, we have a concrete plan so that customers get their amount of gas," Reuters quoted a Gazprom spokesman as saying. "If they do that, we will go to court and will also increase supplies via alternative [routes]."

Gazprom's Kupriyanov said Belarus itself was unlikely to be hit hard by the measure, as demand for gas was lower in the summer.

Vladimir Chekov, a spokesman for Beltransgaz, said "it was unclear" whether summer weather would help cushion the blow. He declined to comment further. Eduard Urban, an aide to Beltransgaz acting general director Vladimir Mayorov, said by telephone that the company was working to resolve the dispute, but declined to elaborate.

"Belarus is currently preparing its proposals for Gazprom to resolve the situation," Andrei Zhukov, an aide to the Belarussian Energy minister, was quoted by The Associated Press as saying.

Mikhail Chigir, former prime minister of Belarus, said Gazprom might have more than the gas debt in its sights.

"Gazprom either wants to get the money or participate in the privatization of the most important enterprises in Belarus," Chigir was quoted by the AP as saying. "Lukashenko doesn't plan to give up the former, and particularly the latter, without a fight.

"Belarus is lacking political will, but wants to play for time," said Valery Nesterov, an oil and gas analyst at Troika Dialog, adding that he believed the dispute would be resolved by the fall.

He said a likely result of the latest gas feud would be renewed calls for the diversification of supplies in Europe, which depends on Gazprom for 25 percent of its gas.

Even if the current dispute is settled quickly, the political difficulties between Minsk and Moscow are still likely to increase, Yaroslav Romanchuk, head of the Mizes Research Center, said from Minsk.

"The Belarussian government still can't adapt to the new energy reality," Romanchuk said.