Precarious Russia oil deal may hit Belarus refiners

* Russia wins agreement on duty-free volumes

* Belarussian refinery runs could fall – traders

* Deal averts supply cuts to Europe

* Belarus to pursue tariff removal in customs union

* Analysts say dispute could flare up again

By Robin Paxton and Gleb Gorodyankin

MOSCOW, Jan 28 (BestGrowthStock) – Belarus may need to cut refinery
runs after bending to Russian demands on the amount of oil it
can import duty-free, traders said on Thursday, a day after the
ex-Soviet states signed a deal to end a month-long oil dispute.

But Russia’s hard-won deal, which will secure the Kremlin a
bigger share of oil revenues, may prove to be short-lived. The
Belarussian government said in a statement it would pursue the
removal of export tariffs in line with a planned customs union.

“Within a customs union, the agreements reached in Moscow
cannot exist for long,” the Belarussian government said.
Russia and Belarus agreed an oil supply deal on Wednesday,
easing fears in Germany and Poland that the escalating dispute
could affect deliveries of crude along a route carrying about 10
percent of European supplies from West Siberian oilfields.

Russia agreed to supply 6.3 million tonnes of duty-free oil
to Belarus, enough for its domestic consumption, with a proviso
that this amount could be raised after September should the
Belarussian economy exceed growth forecasts. [ID:nLDE60Q27P]

“On face value, Russia probably won this dispute, since
Belarus wanted more oil exempt from export duties,” said
Chirvani Abdoullaev, senior oil and gas analyst at Alfa-Bank.

Belarus, which signed the deal as supplies to its two
refineries slowed to a trickle [ID:nLDE60O2D8], must pay full
export duties on the excess Russian crude it receives after
paying only 35.6 percent last year.

These volumes are likely to exceed 14 million tonnes, most
of which is refined and re-exported.

Several Russian traders said refinery runs in Belarus were
almost certain to fall as a result. One trader said this could
even force one of the two plants, Naftan or Mozyr, to close.

“Refinery runs will definitely come down. The refineries
were only surviving on the low duties,” one trading source said.

Belarussian state oil concern Belneftekhim declined comment.

CUSTOMS UNION

Belarussian First Deputy Prime Minister Vladimir Semashko
was quoted by agencies as saying Russian oil refined in Belarus
and returned to Russia for export would be exempt from duties.

Semashko, who attended the talks in Moscow, also said
Belarus would forge ahead with plans to modernise its two
refineries. “Under no circumstances will we slow the tempo of
reconstruction,” he said in a separate statement.

The dispute had the potential to flare up again, analysts
said, as the planned customs union between Russia, Belarus and
another ex-Soviet state, Kazakhstan, begins to take shape.

Russian traders, who met with customs brokers on Thursday,
said they had received few clues on what action to take next.

“There is uncertainty about how the duty-free volumes will
be spread throughout the course of the year, as January
deliveries were imposed at 100 percent,” one source said, adding
that Belarus had not received any oil duty-free this month.

Russia had agreed to an 11 percent hike in transit fees on
crude that crosses the territory of Belarus en route to Europe,
Semashko was quoted as saying by Belarussian news agencies.

But analysts said Moscow had won the biggest concessions.

“It’s a material shift in pricing terms. Essentially, it
will help the Russian budget,” said Lev Snykov, oil and gas
analyst at VTB Capital in Moscow. “Russia is running the
pipeline business, which helps in resolving these issues.”

The deal might also give impetus to oil pipeline monopoly
Transneft’s (TRNF_p.RTS: ) project to build phase two of the
Baltic Pipeline System, a 1,000-km (625-mile) route to the
Baltic Sea that will bypass Belarus. [ID:nLA583453]

“Diversifying, hedging your bets, protecting yourself makes
sense,” Abdoullaev said.

Investing Tools
(Additional reporting by Andrei Makhovsky in Minsk and Vladimir
Soldatkin in Moscow; editing by Sue Thomas)

Precarious Russia oil deal may hit Belarus refiners