Oil and Gas

UPDATE 2-Russia halts oil flows to Belarus refineries

* Transit flows to Poland and Germany continue - traders

* Belarus threatens to raise transit fee 10-fold

* Belarus refineries have stockpiles for one week

(Recasts, adds details on talks)

By Dmitry Zhdannikov

MOSCOW, Jan 3 (Reuters) - Russia has halted oil supplies to Belarussian refineries after failing to agree terms for 2010, traders said on Sunday, threatening a repeat of a dispute which disrupted supplies to elsewhere in Europe three years ago.

Deliveries to Belarus refineries were halted after talks broke down on New Year’s Eve, two traders from major Russian oil firms told Reuters.

Transit flows to other parts of Europe have not so far been affected, but Germany and Poland are closely watching the stand-off after supplies to some of their major refineries were cut during a similar row between Moscow and Minsk in January 2007.

Talks on a new pricing structure for 2010 supplies restarted on Saturday and were continuing on Sunday, said Igor Dyomin, a spokesman for Russian pipeline monopoly Transneft TRNF_p.RTS. [ID:nLDE601047]

European politicians have repeatedly accused the Kremlin of using its energy might as a tool of intimidation against its neighbours, be it gas or oil deals with Belarus or Ukraine.

Russia, the world’s largest oil and gas producer, says it is simply switching gradually to market terms after subsidising neighbours with cheap energy for years.

A fifth of Europe’s gas comes from Russia via Ukraine and Belarus. Large volumes of Russian oil also go through pipelines that traverse the two ex-Soviet states.

The two traders said two Belarussian refineries -- Naftan and Mozyr -- had enough stockpiled crude to continue operations for around a week.

“In Belarus they say when holidays are over on Monday, Lukashenko will come back and decide what to do,” said one trader, referring to Belarussian leader Alexader Lukashenko. Russia is on holiday until Jan. 11, while Belarus resumes working on Jan. 4.


Minsk has insisted that Russia supply duty-free oil not only for volumes consumed domestically in Belarus, but for all Russian crude supplied to the country.

Most of that crude is refined by Naftan and Mozyr for re-export to the West and only a small portion of refined products stays inside Belarus.

Traders said Mozyr and Naftan have stockpiles of around 450,000 tonnes.

They also said Belarus had threatened to raise transit fee on Russian oil supplies to Poland and Germany 10-fold to $45 per tonne in retaliation against Russian demands.

That would make transit supplies of crude expensive and potentially disrupt flows to Poland and Germany.

Russia and Belarus had plans to created a union with one currency and common customs rules, but the project never materialised as relations between the two states chilled.

Moscow has often blamed Lukashenko, who has been running the country for over a decade along Soviet-style command lines, for failing to keep its promises, including selling top assets to Russian firms.

Lukashenko in turn has accused Russia of deviating from initial agreements to create the union, including its efforts to raise oil duties.

Belarus gets some 400,000 barrels per day from Russia via the Druzhba pipeline, one of the world’s biggest pipelines by length and capacity.

Druzhba’s spur crossing Belarus supplies major refiners in Germany covering some 15 percent of the country’s oil needs, while Poland relies on Druzhba for more than three-quarters of its consumption. (Additional reporting by Gleb Gorodyankin; Editing by David Holmes)