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29 May, 2010 07:56

Belarus offers gas system for domestic Russian prices

Belarus has offered a controlling stake in its gas transit system and an oil refinery, which could further secure Russia's gas supply routes to the European market.

Belarus has offered Russia a controlling stake in its gas transport system and an oil refinery in return for oil and gas supplies at Russian domestic prices.

The details from Minsk are thin on the ground. Gazprom already owns 50 percent of Beltransgaz, the Belarussian transit company. And the reaction from politicians and Gazprom to the offer of more has been fairly lukewarm.

Gazprom says Belarus would have to clear its outstanding debt of $200 million before it would consider a deal, while deputy prime minister Sechin's view is that raising its stake makes little economic sense at the moment.

However this may just be a tough negotiating stance. Moscow has long made it clear it wants control of the major gas transit routes to Europe. Viktor Mishnyakov, Senior Oil & Gas analyst at Uralsib says events need to be watched.

“What that will bring to Russian oil companies and to Gazprom is still a matter of time. We still have to monitor this.”

Meanwhile, Gazprom and Ukraine's Naftogas have been holding talks over a possible joint venture.

Gazprom's latest idea is to create an industrial consortium that would focus on pipelines. The two sides have also agreed that whatever they do it should be 50-50 owned.

The transit system in Russia and Ukraine was mostly built in the Soviet era as a single entity and was later separated.

Gazprom says it’s ready to bear much of the cost of its modernization, however Ukraine is wary of ceding control of its best strategic asset, according to IFC Metropol, Senior Oil & Gas analyst, Aleksandr Nazarov.

"Ukraine understands that after losing control over its transportation system, it loses actually the only and the last significant bargaining arguement against Russia. At the same time, Ukraine should realize that if South Stream will be built this last bargaining arguement will be lost without any compensation."

It appears the balance of power between Russia and its neighbours is shifting.

Belarus is in a weak negotiating position and has far less to offer than Ukraine, and for the time being Moscow seems happy to play hardball.