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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Belarus Considers Selling Oil Pipelines - Deputy Premier

In the bad old days of the “evil empire” the USSR functioned as largely autarkic economic state, dealing with the outside world on its own terms.

But seduced by Western “hard currency,” in the early 1970s the USSR, despite Washington’s distress, began energy exports to Europe despite the objections of successive U.S. administrations.

The situation has continued to now, but the Russian Federation does not own and subsequently control, its most valuable transit assets, the skein of Soviet-era pipelines across Belarus and Ukraine.

Accordingly, the past two decades have seen the Russian Federation and its western former Soviet republic partners involved in an increasingly intricate minuet, wherein Gazprom offers to buy outright the pipeline network in return for either a) a reduced natural gas price or b) the cancellation of outstanding depts.

Gazprom’s ultimate whip hand in this?

Insist that Belarus increasingly pay world prices for Russian natural gas.

Belarus is the second largest sales market for Russian Federation natural gas among the republics of the former USSR. In 2011, Belarus received 20.6 billion cubic meters of gas, 29 percent of the Russian Federation’s total sales in the Commonwealth of Independent States CIS).

While both energy-poor Ukraine and Belarus have resisted selling off their Soviet-era pipeline assets to Gazprom carpetbaggers, it would now seem that Belarus has begun to reach the end of the road.

On 17 February, First Deputy Prime Minister Uladzimir Syamashka, while accompanying President Oleksandr Lukashenka on his tour of the Minsk region told reporters that, sooner or later, the Belarusian government will have to sell the country's oil pipeline system, remarking, “Various negotiations are being carried out. Naturally, various scenarios are being considered.” Syamashka added that while the possible sale of the Belarus natural gas pipeline transit system has not yet been given “serious” consideration it is only “a matter of time.”

Syamashka noted that while the country's oil and natural gas pipeline network does not operate at its full capacity at present, reminding his countrymen of Russian options Syamashka added that the Russia Federation has also constructed a second trunk pipeline of the Baltic Pipeline System to transport hydrocarbons bypassing Belarus and so, "We should think how to increase the efficiency of the existing facilities."

And the Russian Federation is certainly tightening the screws on Belarus.

According to the Belarus National Statistics Committee, in 2011 the average price of the Russian gas rose 41.5 percent over 2010 prices.

But, not to worry. In his New Year message to the Belarusian people, Belarus President Lukashenko informed his happy constituents, “My profound gratitude is to those who have grown and reaped the biggest harvest in our history, who have made sure that natural gas supply was extended to all parts of our country… to those who have been conscientiously and honestly working on a daily basis, serving their Fatherland faithfully… Belarus is a European state. And there is no need for us to prove it.”

And the position of Belarus athwart one of Gazprom’s two major export routes to Europe still gives Minsk some clout as, amidst its ongoing wrangles with Ukraine about exports, the Russian Federation’s natural gas monopoly Gazprom said it could increase the amount of gas it sends to Europe through Belarus by 13 percent compared with its 2011 export levels.

But Lukashenka’s administration has other energy options besides its giant eastern neighbor. Last November the private news agency BELAPAN reported that since the beginning of the year, 11 tankers with crude oil from Venezuela arrived in Estonia’s Muuga oil port, delivering roughly 80,000 tons of oil each for Belarus, having delivered since the beginning of the year roughly one million tons of oil.


That said, the Lukashenka administration is still willing to work with Moscow. Four months ago the Russian government issued a press release stating that Russian Prime Minister Vladimir Putin, Kazakh President Nursultan Nazarbayev and Lukashenka had signed a package of agreements to more closely integrate their former Soviet republics, including one creating the Eurasian Economic Union (EEU) by 2015. Russian President Dmitry Medvedev exulted, "We have made another powerful move toward creation of the Eurasian Economic Union, which undoubtedly will define the future of our countries," thanking Nazabayev, who first broached the idea of the EEU in the 1990s and Lukashenka, who convened the meeting. Belarus is the economic basket case of the trio. Putting a positive spin on the union declaration Lukashenka said, "We clearly stated that we are not losing sovereignty."

So, for Belarus, junior, energy-starved EEU partner, forced to sell former Soviet energy assets at firesale prices to enrich eastern neighbors, or tough it out, making do with interim Venezuelan energy imports and rising European Union interest.

Should be interesting.

By. John C.K. Daly of Oilprice.com

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