Pipeliners

January 9, 2007 - International Herald Trubune - by Michael Schwirtz - MOSCOW: An unyielding President Vladimir Putin on Tuesday urged his cabinet to discuss with Russian companies "the possibility of scaling down the extraction of oil, given problems in transiting crude across Belarus," and he raised the possibility of diverting oil transit routes away from that country. Putin's comments, in a meeting with cabinet ministers, came a day after Moscow cut off pipeline deliveries of crude headed to Europe through Belarus. His hint at scaling back production indicated that Russia might not have unlimited storage for oil that is being produced but not exported. Any change in Russian oil routes, meanwhile, which would be years in the making, would cut Belarus out of any role in the transshipment of oil to Europe, without offering Western European customers any immediate assurance that their supplies were reliable. The two-day cutoff of supplies has affected Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia. It is the second stoppage of Russian energy shipments to Europe since last winter. Officials in Moscow accused Belarus on Monday of siphoning about 79,000 tons of Russian oil bound for Europe, and Russia subsequently cut off the supply though the Druzhba pipeline. The 4,000-kilometer-long pipeline pumps 1.2 million barrels a day to Eastern and Central Europe. One arm runs to Poland and Germany, the other to Ukraine, Hungary, Slovakia and the Czech Republic. Russia is eager to prevent Belarus from taking oil purchased earlier from Russia under the previous duty-free arrangement and re-exporting it at higher prices, and imposed an export duty after the conflict was well under way. In general terms, Putin told his cabinet ministers to do whatever was necessary to guarantee the interests of Russian companies as well as the interests of Western countries dependent on Russian energy supplies. He also said the government must continue negotiations with Russia's "Belarussian partners." Belarussian officials flew to Moscow to negotiate, but Russia was in no hurry to talk. Earlier in the day, one delegation submitted a draft agreement to the Russian Economic Development Ministry, Interfax reported. According to Belarus's deputy economic minister, Vladimir Naidunov, the agreement could "make it possible to mutually settle issues concerned with levying customs duties on oil and with duties for oil transportation through Belarus." It was unclear throughout the day when or whether negotiations would begin, as Russian officials tried to formulate their starting positions. German Gref, Russia's minister for economic development and trade, told a news conference Tuesday evening that Russia would start talks only after Belarus had lifted transit duties and resumed oil transit. On Jan. 1, Russia began charging Belarus a duty of $180 a ton on oil sold to Belarus, in addition to more than doubling the price it charges the country for natural gas. Minsk responded last week by imposing a $45-a-ton transit fee on Russian oil destined for Europe. It also siphoned off about 79,000 tons of Russian oil bound for Europe, perhaps to bolster its domestic supply. "Belarus's reserves of cheap oil will last a few days, a week at most," Yaroslav Romanchuk, an economist in Belarus, told The Associated Press. "After that it will have to buy oil taking into account Russian export duties." The Russian oil export monopoly Transeft filed a suit on Tuesday against Belarus in response to the alleged theft. In a news conference, the Russian industry and energy minister, Viktor Khristenko, said that, given time, Russia would be able to reroute oil around Belarus, possibly by increasing the capacity of the Baltic pipeline system or hurrying the completion of the East Siberia-Pacific Ocean pipeline. In the short term, he said, Russia may have to ship more oil by rail and river. "If these measures aren't enough, it could be necessary to reduce oil output," he said. Such a move would effectively cut Belarus out of Russia's energy equation, depriving the Belarussian economyof much-needed revenue.