UPDATE 6-Russia cuts gas flow to Belarus in debt row

Mon Jun 21, 2010 1:41pm EDT

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* Russia reduces gas supplies to Belarus by 15 pct

* Says cuts may deepen, Minsk says to pay in 2 weeks

* Belarus pledges uninterrupted gas transit to Europe

* Dispute comes amid strained political relations

* Analyst says Europe will not suffer much as demand low

(Adds Belarus energy minister comment)

By Dmitry Zhdannikov

MOSCOW, June 21 (Reuters) - Russia cut gas supplies to Belarus by 15 percent on Monday pressing its neighbour to pay a $192 million debt and raising the possibility of a reduction in flows to Europe. Relations between the two have soured since they failed to agree on unified customs rules and Belarus gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev, despite Moscow's support for the new Kyrgyz leadership.

Russia supplies a quarter of Europe's gas needs and uses Belarus, which borders European Union member Poland, as one of two key transit routes or oil and gas to the continent.

Previous pricing disputes with Minsk led to oil supply cuts, with Poland and Germany being affected most. Poland gets about 40 percent of its Russian gas through Belarus.

Belarus pledged to ensure uninterrupted deliveries.

"We are taking all measures so that the transit will remain safe, so that the customers, which receives gas through our transit pipelines, will not feel any cuts," Deputy Energy Minister Eduard Tovpenets told reporters in Minsk.

A similar standoff with Kiev halted the much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a cold snap.

Russian President Dmitry Medvedev told gas monopoly Gazprom (GAZP.MM) to cut supplies from Monday, the Kremlin's press office said. Gazprom said it had started implementing the order and reduced supplies by 15 percent from 10 am.

"Strictly speaking, Gazprom has the contract right to cut supplies by 85 percent or more but is not doing it given our special relations with Belarussian consumers," Russian Prime Minister Vladimir Putin said.

Belarus' First Deputy Premier Vladimir Semashko said the debt could be repaid within two weeks. "We will borrow but repay," he said.

Russian gas transit via Belarus amounts to one-tenth of Europe's needs, much smaller than the transit via Ukraine, totalling around 45 million cubic metres a day.

"Belarus transits about 9 percent of Russian gas going to Europe and this is 15 percent of 9 percent," Jonathan Stern, a Russian gas expert at the Oxford Institute for Energy Studies, said.

"The only country for which this could be an issue is Poland because Poland gets a lot of its gas through the Belarus line. But we are in June."

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To watch a Reuters Insider interview with Jonathan Stern director of gas research at the Oxford Institute of Energy Studies, click here: link.reuters.com/cex72m

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GAZPROM SAYS COULD REROUTE

"While a lengthy suspension... could cause supply problems for Europe, we do not anticipate any major supply disruptions over the summer months as a result of reduced European demand and available spare supply capacity through Ukraine," said Alexander Burgansky of Renaissance Capital brokerage.

"At the same time, we believe the crisis is likely to be over by autumn, judging by the timeline of similar disputes in the past," he added.

Prices in European gas markets were stable to slightly lower on Monday <0#TTFGAS-CTD> <0#NBPGAS-SPC>, in contrast to a rise in prices seen during Russia's rows with Ukraine in 2009.

The European Union said on Monday it expected Russian gas to continue flowing to the bloc, and Polish gas monopoly PGNiG said it was seeing normal supplies and did not expect any changes.

"We are counting it will not affect them (EU members), because otherwise Russia would become not a credible partner for the EU, and we believe we are talking to a very credible partner," said Jerzy Buzek, head of the EU Parliament.

Gazprom stock closed up 2.18 percent, slightly below the broader Russian market, propelled by higher oil prices and largely ignoring the news about cuts.

Western politicians have repeatedly accused Russia of using its energy might as a tool of intimidation against its smaller neighbours and have called on the continent to diversify away from Russian deliveries.

The gas cuts to Belarus come days after Russia's top investment conference in St Petersburg, where Medvedev said the country was changing its ways, modernising and becoming more appealing to global investments. [ID:nLDE65H0NT]

Gazprom says Belarus has been paying $150 per 1,000 cubic meters, instead of the $169.20 that the company charged in the first quarter and $184.80 in the second, which created the debt.

Belarus has said Moscow owes it $200 million for transit and Gazprom has long denied it. On Monday, Gazprom acknowledged the debt existed but blamed Minsk for blocking payments.

Gazprom has said it has the capacity to reroute the European gas supplies away from Belarus and that the impact of the cuts will be less severe due to lower summer-time needs.

Weak industrial demand in the economic crisis and plentiful supplies of liquefied natural gas (LNG) also have reduced demand for Russian pipeline gas. [ID:nLDE624135]

(Additional reporting by Toni Vorobyova, Gleb Bryanski and Anastasia Lyrchikova in Moscow, Andrey Makhovsky in Minsk, Chris Borowski in Warsaw, and Daniel Fineren in London; Editing by William Hardy and Jane Baird)

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