EU risks mini-repetition of last winter's gas crunch

Russia wants Belarus to pay $200 per thousand cubic metres of gas from January, compared to just $47 today, and to pay new duties of $180 per ton of oil, in what could rip over $2 billion from Belarus' state budget and see domestic heating bills rocket.

The situation is less serious than Ukraine, which transits 80 percent of Russian gas to Europe, but Belarus' Yamal pipeline pumps the other 20 percent to Poland, Germany, the Netherlands, France and Belgium, with Poland and Germany to feel the brunt of any disruption.

"We haven't heard a specific threat to cut off Belarus gas in January, but it's possible," an EU diplomat stationed in Minsk told EUobserver, citing events in 2004 when Russia turned off the tap to Belarus for one day in a dispute over pipeline ownership.

"You could end up with a situation like Ukraine, where Russia puts less gas into the [Belarusian] system, but the domestic and transit pipelines are so intermeshed, that Belarusian consumers end up using 'EU' gas," Daniel Simmons, a gas expert at the International Energy Agency said.

"This time last year I was confidently saying they wouldn't cut off Ukraine, especially as they had the G8 presidency with energy security high on the agenda. But they did it anyway," he added.

"We've talked to the Belarusians and we are watching the situation very closely," a European Commission spokesman said. "We hope they come to an agreement, but independent of the bilateral situation, we hope they respect contracts with third parties."

Déjà vu

In January 2006 Russia switched off gas to Ukraine for two days in a price war with the Orange Revolution government, but with the Russia-friendly Viktor Yanukovych back in power and with Ukraine gas reserves full, the EU's southern gas leg seems safe.

Meanwhile, with Romania and Bulgaria set to join the EU in 2007, Brussels could also see itself in future getting dragged deeper into energy relations between Russia and Moldova – an important gas transit state for both the new EU members.

Russia switched off Moldova's gas for over 10 days last winter and is due to sign a new price contract on 25 December, but the deadline for the signature has been pushed back five times already. "Nobody knows what will happen," a Moldovan diplomat said.

Meanwhile, EU-hopeful Georgia, which saw mysterious explosions temporarily cut off its Russian gas flow last year, is already budgeting for fresh Russian cuts with a still-to-be formalised deal to ship in two-thirds of its consumption from Azerbaijan instead of Russia next year.

Bigger trouble ahead

But even if the winter of 2007 passes uneventfully, experts at the IEA and leading think-tanks, such as CEPS, are beginning to convince EU policymakers that Russia itself is heading for a major gas supply shortfall in the next few years.

CEPS predicts that under-investment in new gas fields, leaky pipes, inefficient heating systems and factories could see Russia in 2010 fall short of internal consumption and export needs by more than 126 billion cubic metres - an amount of gas close to Russia's entire export to the EU in 2006.

"The core issue for the EU is not the threat of a politically motivated gas cut off. Rather it is the prospect of Russia, through lack of investment, not being able to produce enough gas to cover Russian and EU demands," CEPS expert Alan Riley warns.