Facing the loss of pipeline transit fees and potential customers for nuclear-generated power, the Belarusian energy sector faces challenging times.
As one of the world’s least energy self-sufficient countries, Belarus has always been extremely reliant on the import of Russian oil and gas, which constitute around 90 percent of the nation’s primary energy supply. While oil is currently mostly refined for later export to the EU, natural gas serves as the main source of energy for Belarus’s electricity generation, household heating, and industries. Though the dependence on Russian gas has never been comfortable, its transit to Europe via the Yamal-Europe pipeline used to annually generate around $300 million for the national budget. Starting this year, however, the situation is likely to dramatically change. For the worse.
No More Gas Transit?
On 5 July, Gaz-System – the operator of the Polish section of the Yamal-Europe pipeline – held an auction to book the company’s interconnection capacities for the upcoming year. Quite surprisingly, Gazprom, the Russian state-controlled energy giant, did not bid to make use of the pipeline for shipment to the Polish gas transmission system via Belarus. This means that, if nothing changes, the Belarusian budget will annually be deprived of hundreds of millions of dollars – losses due not to European sanctions, but to the United States waiving sanctions on Russia’s Nord Stream 2 pipeline, and to the subsequent change in Gazprom’s gas transit plans.
Capable of transporting around 33 billion cubic meters of gas per year, the Yamal-Europe pipeline is currently one of the key routes to deliver Russian gas to Europe. On the other hand, with total capacity of 55 billion cubic meters per year and no “problematic” transit countries on its way to Germany, the main consumer of Russian natural gas, the Nord Stream 2 pipeline seems to offer better perspectives for Gazprom even despite the opposition of some European countries. While the Trump administration strongly opposed the project, the Biden administration declared it a fait accompli.
Last year, with uncertainty around the future of Nord Stream 2 at its height, the Belarusian segment of the Yamal-Europe pipeline was fully booked for the delivery of Russian gas to Europe. This year, however, the situation seems to be different, as Gazprom decided to dramatically reduce the transit through Belarus in the last quarter of 2021 to 1.9 billion cubic meters, in the expectation that Nord Stream 2 will be completed by the end of the year. With such a dramatic decrease in transit through Belarus and no overall intention to reduce gas shipments to Europe, Gazprom’s interest in the Belarusian route seems to be fading away. Though it is not clear yet to what extent Gazprom may reduce shipments through Belarus in the years to come, the July auction appears to signal Russia’s preference for alternative routes.
Going Nuclear or Going Bankrupt?
To reduce domestic reliance on Russian natural gas, Belarus initiated the construction of its first nuclear power plant, which officially went into service in November 2020. Apart from the desire to reduce gas imports, this decision had a geopolitical element as well. In fact, Russia would normally tie any gas price renegotiations to some concessions, such as the official recognition of the “independence” of Abkhazia and South Ossetia or the establishment of a Russian airbase in Belarus. Hence, with a lack of major fossil fuel deposits and an insignificant share of renewables in the national energy mix, nuclear power looked like a decent candidate to replace natural gas in Belarus, especially back in 2008 when the idea was officially voiced by President Alyaksandr Lukashenka.
The prospects for nuclear seemed to improve in 2009, when Lithuania finally decommissioned its only nuclear plant and became a net power importer. This made building a nuclear plant that would potentially be able to generate enough power for export to Lithuania and other EU countries sound like a decent plan. That is why Belarus planned a two-reactor facility capable of generating 18 billion kWh per year, of which around 7 billion kWh would be left for export to the EU. While the idea looked promising at the time, it turned into a much more dubious undertaking as time went by.
The decision to place the Astravets plant some 20 kilometers from the border with Lithuania was obviously related to the export plans of the Belarusian authorities. In this connection, Russia’s $10 billion loan for the plant was supposed to be partially covered through the expected revenue streams from exporting power. However, after a number of incidents at the construction site, opposition to the plant grew in Lithuania, eventually leading to the passage of a law in 2017 barring any future purchases of electricity it would generate.
Lithuania also managed to persuade Latvia and Estonia – which used to buy Belarusian electricity through Lithuania – and Poland to join the boycott of the Belarusian nuclear plant. In addition, in May 2021, Ukraine also stopped buying electricity from Belarus at least until October. Unfortunately, Russia, the only neighbor that has not yet officially cut off access to Belarus’s electricity, is also unlikely to buy it, since the Smolensk nuclear plant (closest to the Belarusian boarder) is operating with spare capacity. In these circumstances, Belarus seems to be doomed to consume all its excess power on its own.
To use all of the energy Astravets produces, Belarus will need to rapidly convert its key industries and sectors from fossil fuels to electricity while dramatically increasing its electricity consumption. In the current conditions of deepening economic crisis and growing international pressure on the regime, a rapid increase in energy use does not seem to be feasible, as creating new energy-intensive industries or scaling up existing ones is not an easy task to accomplish on a tight budget. Moreover, electrifying the economy will require further billion-dollar investments, which will be hard to reap. That is why, from the financial and strategic point of view, it is hard to imagine a worse timing for the Astravets plant to enter commercial operation than now. Although some kind of miracle in the form of an unexpected Russian loan should not be excluded, it seems more likely that the Belarusian energy sector is about to enter one of the most challenging phases it has ever experienced.
Aliaksei Patonia (LinkedIn) is a visiting research fellow at the Oxford Institute for Energy Studies. He currently focuses on the global energy transition and policies to incentivize “green” hydrogen production.