US Makes Questionable Supply Offer to Belarus
US Secretary of State Mike Pompeo visited Belarus on February 1, offering to supply the country with as much oil and gas as it needs.
The proposal comes as Belarus remains locked in one of its longest-running disputes with Russia, traditionally its closest ally and currently its sole fossil fuel supplier.
“We’re the biggest energy producer in the world, and all you have to do is call us,” Pompeo said after a meeting with Belarusian foreign minister Vladimir Makei in Minsk. “Your nation should not be forced to be dependent on any one partner for your prosperity or for your security.”
Belarus typically gets around 24mn mt of oil and 20bn m3 of gas from Russia each year, piped directly from fields in Siberia. These supplies are sold cheaply and are not subject to export duty, helping to shore up the Belarusian economy and keeping the country under Moscow's influence.
However, Belarus and Russia were unable to agree new long-term contracts for oil and gas supplies last year, because of a row over prices as well as Minsk’s demand for compensation for recent Russian tax changes that have driven up the cost of the oil it buys.
Oil shipments were halted on January 1, causing Belarus to scale back production at its two refineries. They resumed days later, although at reportedly at much lower level, forcing Belarus to buy oil from alternative suppliers like Norway. A long-term supply contract between Belarus and Russia is still not in place.
The two sides managed to strike a temporary deal on gas, covering supplies in January and February only. Similarly, they are yet to make progress in reaching a lasting agreement.
Following the same pattern as in similar disputes with Russia, Belarus has made bold claims in recent months it can significantly reduce its Russian oil and gas intake by reaching out to alternative suppliers. In reality, though, Minsk is unable to secure supplies anywhere near as cheap or convenient as those it gets from Moscow.
Fitch Ratings estimates that spot prices in Europe averaged $4.6/mn Btu in 2019, while Belarus paid only $3.6/bn Btu for Russian gas. Russian oil supplies to the country are similarly discounted to market prices.
“It is impossible to imagine US producers selling LNG to Belarus at a price lower than European spot prices, which on certain days may be lower than that of Russian gas, but not over a medium- or long-term,” Fitch analyst Dmitry Marinchenko told NGW. “Cost-wise Russian gas in Belarus would be much cheaper than US.”
For US LNG to even reach Belarus, it would first need to be regasified at terminals in Poland and Lithuania. Extra investment in infrastructure would then be needed to transport the gas to Belarus, whose pipeline network is designed to flow supplies from east to west.
The disruption in Russian oil supplies has significantly impaired the Belarusian economy, which relies on petroleum products for around 20% of its export revenues. Russia has said before it will only grant further concessions to Belarus on energy supplies its eastern neighbour agrees to closer political and economic integration. Russian president Vladimir Putin and his Belarusian counterpart Alexander Lukashenko are due to meet again for talks on February 7.