Accounting for “friends”: how is the price of gas for Belarus

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From 2001 to 2015 the total volume of Russian gas subsidies totaled $49 billion, i.e., over 100% of GDP of Belarus

The energy conflict between Russia and Belarus, according to official reviews far from the settlement, and the public discussion has again reached a high level. After the recent dispute Prime Ministers continued the discussion of the Belarusian President. The main thesis of Alexander Lukashenko simple: accounting should not be the basis of the Belarusian-Russian relations. The argument of this thesis was almost sacred, could not resist the head of Belarus and the threats against Russia and its leadership, “Medvedev needs to understand that if we pay in Europe, for something he, too, will have to pay. And the price will be enormously higher than the price of natural gas.”

With this thesis Lukashenko wants to understand and figure out how reasonable the claims of the Belarusian side.

Equal profitability

The current conflict began with the fact that from January 2016 on the background of a General decline in commodity prices the contract price of gas for Belarus has declined, but, in the opinion of the Belarusian side, is not enough — only 5%. The difference in price with the European countries (for reference, take Germany) plummeted from $116 per 1 thousand cubic meters. m in 2015 to $19 per 1 thousand cubic meters in 2016. And Belarus unilaterally decided to restore “social justice”.

Now Belarus and Lukashenko this speaks directly — seeking domestic prices for natural gas. The Belarusian side appeals to the fact that, according to previous agreements, Russia had planned to raise domestic prices to the level of equal (with exports to Europe, minus export duties and transportation costs), the prices for consumers of Belarus and Russia would have to close. In fact, the Russian authorities have postponed the introduction of equal until the beginning of 2018 and, most likely, again will take this time. The creation of a common gas market of the Eurasian Union, implying equal economic conditions, planned only by 2025. Therefore, the Russian side has every reason to consider the requirements of Belarus on a single price premature.

For “Gazprom” Belarus is one of the largest consumers. In recent years the supply in the country was about 19-20 billion cubic meters per year (in 2016 to 18.6 billion cubic meters). With such volumes even a small discount of $10 per 1 thousand cubic meters turns into a revenue decline of nearly $200 million.

We must understand that all the years of independence Belarus has received gas from Russia at extremely favourable terms — in some years, it was buying gas at much cheaper than all the neighboring European countries.

Particularly advantageous friendship with Moscow was in 2005-2008, when the price for Belarus was three to five times lower than for Germany. In the end, the total grant (calculated as the difference in the price of imports with Germany multiplied by consumption volume) in the period amounted to $19.6 billion

It was also decided to gradually increase prices, but with the purchase of “Gazprom” and “Beltransgaz” negotiations are strongly stretched, and rising prices for oil and gas in 2012-2014 subsidies was again very significant. In total, 2001-2015 volume of Russian gas subsidies totaled $49 billion, i.e., over 100% of GDP of Belarus. And this is excluding the duty-free supplies of oil and oil products, where the scale of subsidy the same order.

According to the official assessment of “Gazprom” in January—September 2016 underpayment for gas supplies amounted to $340 million subject to the declared value of imports at $136,6 per 1 thousand cubic meters of such indebtedness could be formed by the payment level 80% of the contract price, or $110 for 1 thousand cubic meters.

While negotiations dragged on, in January 2017, the debt rose to $550 million, and at the end of the first quarter, is likely to reach $650 million Further increase the debt by $30-35 million per month further complicate the search for solutions.


Officials of Belarus in their review of negotiations often referred to some “fair” price calculated from the prices in Germany by the “netback”. Net of export duties and transit fees through Poland and Belarus, the gas price at the Russian-Belarusian border, a large part of 2016 was kept at $80 per 1 thousand cubic meters.

But in December 2016 amid rising oil prices, a similar calculation gave a price of $100, and in February 2017 — $120. This is substantially higher than desired by Belarus of 70-80 dollars for 1 thousand cubic meters.

You can argue what the price of gas is “fair” for Belarus — netback from Germany, or the Russian domestic price premium, or any other. But what price is the market — obviously. The price of replacement from other sources.

And here before us is a perfect example — Ukraine. After long disputes about the price, which Ukraine, too, often appealed to the “netback”, she completely refused to buy Russian gas. Now in fact, the Russian gas Ukraine buys from the European countries (which is partly linked to record exports of Russian gas to Europe in 2016). On average for 2016, the import of gas to Ukraine at a cost of $201 per 1 thousand cubic meters in the fourth quarter of its cost has increased to $211. While Germany purchased Russian gas last year at $155 and, in particular, in the fourth quarter — at $163. That is, Ukraine gas costs 30% more expensive than in Germany. And this is a logical result, since to the European gas price (spot price or the price of the same Russian import) is added to the shipping cost and the margin of the seller.

Belarus is well to study the Ukrainian experience or remember their own experience of diversification of oil supplies, when the Venezuelan oil treated twice as expensive as the Russian.

The authors ‘ point of view, articles which are published in the section “Opinions” may not coincide with ideas of editorial.

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