Bloomberg News

Gazprom to Cut Belarus Gas Price, Gains Pipeline Control

November 27, 2011

(Updates with Medvedev comments in fifth paragraph.)

Nov. 25 (Bloomberg) -- Russia agreed to cut prices for natural gas supplies to Belarus in a deal that sees OAO Gazprom, the Moscow-based exporter of the fuel, acquire full ownership of the neighboring country’s pipeline network.

Belarus will pay $165.60 per 1,000 cubic meters for gas in 2012, according to deals signed today outside Moscow as Presidents Dmitry Medvedev and Aleksandr Lukashenko met, Gazprom said by e-mail. That compares with an average $279 per 1,000 cubic meters the country paid in the third quarter.

Gazprom will buy the 50 percent of national pipeline operator Beltransgaz that it doesn’t already own for $2.5 billion, according to the agreement.

Full ownership of the pipeline network will allow Gazprom to deliver gas directly to European customers, Russian Energy Minister Sergei Shmatko told reporters. The two former Soviet republics along with Kazakhstan will create a single economic zone from Jan. 1 and aim to further integrate economic and currency policy in the so-called Eurasian Union as soon as 2015.

“I believe these documents will not only allow us to meet growing energy demand from Belarusian customers but also strengthen the energy security of our neighbors,” Medvedev said ahead of the signing. Lukashenko called the agreements “historic.”

Belarus is expected to buy 22.5 billion cubic meters of natural gas in 2012 and 23 billion cubic meters in 2013 and 2014, according to the deal.

Luring Ukraine

From 2013 the price for Belarus will equal the price in Russia’s Yamalo-Nenets region plus transportation and the gas company’s system-wide expenses, Gazprom Chief Executive Officer Alexei Miller told reporters after the signing.

Russia has used gas prices to try to lure Ukraine into the single economic zone and promised lower gas rates if Gazprom merges with NAK Naftogaz Ukrainy. Gazprom and Ukraine haven’t yet reached an agreement on price revision. Ukraine and Belarus are transit routes for Russian gas to Europe.

“We think that Ukraine is probably next in line for a discount, though Russia is likely to expect something in return, perhaps a stake in the national gas pipeline as well,” Troika Dialog said in a research note on Nov. 22. The analysts estimated Gazprom would lose as much as $3 billion in expected Ebitda next year from the Belarusian deal.

“The news is positive for Belarus, as any discount on the current gas price would help further reduce import costs and improve the current account dynamics,” VTB Capital said in a research note on Nov. 22. “A one-off inflow of $2.5 billion would raise Belarus’ foreign currency reserves and might provide support for the Belarusian ruble while at the same time lessening concerns over the country’s ability to service its external state debt.”

--Editors: Alex Devine, John Viljoen

To contact the reporters on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net; Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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