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Last Updated: Tuesday, 11 July 2006, 12:38 GMT 13:38 UK
Guide to Russia's key energy clients
finlandlithuaniaukgermanybelarusukrainepolandgeorgiaturkeyitaly

Energy has become the hot topic this year in Russia's relationship with its European neighbours.

Most depend to some degree on Russian gas and were shaken by the dispute between Russia and Ukraine in January, which led to a brief suspension in supplies.

BELARUS

Belarus is the only former Soviet state still paying less than $50 for 1,000 cubic metres of Russian gas. But Gazprom wants to go over to market prices - a four or five-fold increase - from 1 January 2007.

It is prepared to compromise if Belarus sells Moscow its pipelines, which include the second most important pipeline for Russian exports to Europe. Belarusian President Alexander Lukashenko offered to give up the pipeline during a dispute in 2004, when Russia briefly cut off supplies, but the two sides could not agree how much it was worth. This time they have appointed a Western bank to fix a price.

Russia's cheap gas has amounted to a subsidy for Belarus of $3bn or $4bn per year. The two countries are officially members of a loose union, the Russia-Belarus union, which was originally intended to provide the foundation for a common currency. Mr Lukashenko and some Russian politicians still occasionally lobby for full reunification.

FINLAND

Some Finns are uneasy about Russia's growing economic might. They are also troubled by Russia's democratic and environmental standards, but the Finnish approach has always been pragmatic. The country imports most of its energy, all of its gas and some of its electricity from Russia. It does what it can to reduce this dependence through home-grown nuclear power, which provides a quarter of its electricity.

As the holder of the EU presidency until the end of the year, Finland proposes to engage Russia in a deeper dialogue, by making it a full partner in the European Union's "Northern Dimension" programme, with decision-making powers. Finland will also be leading negotiations on a new EU partnership and co-operation agreement with Russia, holding out the promise of a free trade agreement, if Moscow allows Western firms to take part in Russian gas projects, and gives them fair access to its pipelines.

GEORGIA

The strains in Georgia's relationship with Russia were more than usually obvious in January 2006 when President Mikhail Saakashvili accused Russia of sabotaging a gas pipeline and a power cable supplying Russian energy. Mr Saakashvili said the explosions were an act of blackmail by an "enemy", designed to pressurise Georgia into selling its pipeline network, and halting its attempts to find alternatives sources of energy. Russia rejected the allegation.

Georgia already gets most of its oil from Azerbaijan rather than Russia. It will gain access to Azeri gas when a new pipeline opens in the autumn. Georgia began efforts to diversify energy supplies, when Russia doubled the price of gas to $110 per 1,000 cubic metres in 2005. It imported Iranian gas for a month after the pipeline explosion, and is looking into a longer term deal.

The disagreements between Georgia and Russia run very deep. Georgia accuses Russia of supporting separatists in its breakaway regions, Abkhazia and South Ossetia. Russia opposes Georgia's push to join Nato and the EU.

GERMANY

Germany aspires to a special, strategic relationship with Russia, and nowhere more so than in the field of energy. It is Russia's largest trading partner, and buys more Russian gas than any other country - this gas makes up about 40% of its total consumption. Former Chancellor Gerhard Schroeder struck a deal in 2005 on construction of a new pipeline from Russia to Germany under the Baltic Sea, bypassing other transit countries, such as Poland - and then became chairman of the project's supervisory board.

This year the German chemicals giant BASF won a slice of a major Siberian gas development, in return for giving Gazprom a bigger share of a joint venture selling gas in Germany. German energy giant E.On is expected to do a similar deal soon. At a summit with President Vladimir Putin in April, Mr Schroeder's replacement as chancellor, Angela Merkel, spoke of unspecified "differences of views", but one German minister went on record saying that it would "spoil the atmosphere" to discuss controversial topics.

ITALY

Italy is the biggest importer of Russian gas after Germany, and like Germany it is putting a lot of effort into building a strong relationship with Russia. Italy's main oil and gas company, Eni, is aiming to copy BASF, by giving Gazprom big gas distribution contracts in return for a stake in a Siberian oil and gas venture.

In 2005, about a third of all Italy's gas imports were from Russia, but this is predicted to rise to 40% by 2010. Some Italian consumers had their gas cut off in January when cold weather in Russia led to a drop in deliveries to south-east Europe.

While Europe as a whole is concerned that Russia may not be able to meet demand for gas in the next couple of decades, Italy is also concerned about the getting squeezed by a possible Russian-Algerian cartel. Eni chief executive Paolo Scaroni told the European Parliament in April that an alliance of the top three or four gas exporters would be more effective than Opec, the oil cartel.

LITHUANIA

Lithuania has a more relaxed relationship with Russia than its fellow Baltic states, Estonia and Latvia. Both of these have large ethnic Russian minorities, which are a source of friction with Moscow. But all three states are in the uncomfortable position of being an "energy island" - as the EU puts it - entirely dependent on Russia for oil and gas. There has been much talk of building a power "bridge" to Poland, but no action. Consequently, Lithuania has floated the idea of prolonging the life of its Chernobyl-style nuclear power station, to tide it over until a new nuclear plant can be constructed.

Russia was reportedly furious with Lithuania for hosting a gathering of regional leaders in May, where US Vice-President Dick Cheney gave a speech accusing Moscow of using energy as a "tool of intimidation and blackmail". Meanwhile Lithuania, like Poland, is fed up with Germany for cutting unilateral energy deals with Russia, instead of presenting a united EU front.

POLAND

Poland has a pricklier relationship with Russia than any other former satellite state. The most problematic issue, in recent months, has been Poland's strong support for former Soviet states hoping to join Nato and the EU. Russia accuses Poland of trying to undermine its influence in the region, while Poles accuse Russia of imperial hangovers. Unlike many of its Central European neighbours, Poland is not particularly dependent on Russia for energy, but rakes in transit fees from Russian gas exports through Polish pipelines. Its response to the Russia-Ukraine gas dispute was to call for a Euro-Atlantic energy security alliance, whose members would help each other out in case of a disruption of supplies.

The Russian-German Baltic pipeline deal has caused fury in Warsaw, because of the chance it gives Russia to use gas as a political lever in Central Europe, without jeopardising relations with its biggest customer. One minister likened the deal to the 1939 Molotov-Ribbentrop pact, which carved Poland up between Russia and Germany.

TURKEY

Turkey is a major consumer of Russian gas - 60% of its gas is delivered via two Russian pipelines - but it could also become a transit hub for non-Russian gas exports to Europe. The EU is giving enthusiastic backing to a planned pipeline called Nabucco, designed to carry Caspian and Middle Eastern - and possibly Russian gas too - from Turkey to Austria. Russia does not like the plan. To help satisfy its own fast-growing demand for energy, Turkey is planning to build three nuclear power plants. These could supply 5% of its needs by 2015.

Historically, relations between Russia and Nato-member Turkey have been shaky, partly because of Turkey's ambitions to project its power among the Turkic nations of Central Asia. But Russia is now Turkey's second biggest trade partner, visited by more than a million Russian tourists every year. On the first visit by a Russian head of state in 2004, President Vladimir Putin even praised the country's "independent" foreign policy, notably towards Iraq.

UK

UK Prime Minister Tony Blair helped to kick start the EU's energy policy last autumn calling for "dialogue at a European level with key suppliers of energy" in which Europe would use its collective weight to make its voice heard. Ministers emphasised the importance of the "the EU-Russia dialogue" a few months later, in the light of the dispute between Russia and Ukraine.

Russia supplies only 2% of the UK's gas now, but things are set to change rapidly. The UK was until recently a gas exporter, but it will be importing three-quarters of its gas and oil by 2020. Gazprom wants to supply 20% of the UK's gas by 2015 and is particularly keen to buy into the profitable gas retail sector. So it reacted angrily to signals that ministers - or EU competition regulators - might block a takeover bid for UK's main energy utility, Centrica. Gazprom has already bought one small, provincial UK gas provider, and a share in a pipeline being built between the Netherlands and the UK.

Like other EU states, the UK wants Western energy companies to get more opportunities to develop and export Russian gas. "We need a proper, open market for energy," Foreign Secretary Margaret Beckett wrote in an article for the Russian Komsomolskaya Pravda newspaper in June - days after the lower house of the Russian parliament voted in favour of a law reinforcing Gazprom's gas export monopoly.

UKRAINE

Ukraine went through a period of bumpy relations with Russia after the collapse of the Soviet Union in 1991, and the tensions reappeared with a vengeance after the election of Viktor Yushchenko as president in December 2004, on a pro-EU, pro-Nato platform.

They culminated in a row over gas prices, with Russia finally switching off supplies to Ukraine in January 2006. Throughout the 1990s, Russia provided Ukraine and most other ex-Soviet states with cut-price energy. It decided in 2005 to start charging market prices, but the two sides failed to reach agreement until after the crisis in January.

The deal they struck then was a short-term one, widely criticised in Ukraine and beyond for the involvement of a shadowy Swiss-based intermediary half-owned by Gazprom, and half by unnamed Ukrainian businessmen. It is also dependent on the continuation of cheap gas exports from Turkmenistan - but Turkmenistan wants to raise its prices, and has threatened to switch the tap off if it does not get its way.






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