G-8 energy dispute looms in St. Petersburg

(Reuters) Heated debate about the security of the world's energy supplies will dominate the agenda when the Group of 8 finance ministers meet this week to prepare the ground for the group's annual summit meeting next month.

With the world economy growing at a healthy pace, the focus is shifting to worries about inflation and a perennial debate about how to correct imbalances in the global economy, such as the huge U.S. trade deficit.

But as at the ministers' meeting held in Russia in February, the talks in St. Petersburg on Friday and Saturday may be an awkward place to make progress, given Russia's second-class status in the bloc and controversy over its reliability as an energy supplier.

Finance Minister Alexei Kudrin has put a brave face on his role as host of ministers from the Group of 7. But with central bankers absent and the traditional matter of currencies off the agenda, the meeting's fare is likely to be spartan.

Kudrin suffered the embarrassment of learning that G-7 finance "sherpas" had secretly met on the eve of the talks in February from a reporter's question at the event's closing news conference.

And he has no illusions that once Moscow's inaugural annual presidency of the G-8 ends, Russia will revert to having a lesser role in the G-7's finance deliberations.

"The next meeting will return to the G-7 format, and Russia will participate almost fully, with the exception of one or two questions," Kudrin said Tuesday at a press briefing.

"Russia's involvement in the world economy creates greater chances that we will join in full in the future."

President Vladimir Putin put energy security at the top of his G-8 agenda, hoping to leverage Russia's role as the world's No. 2 oil exporter and supplier of a quarter of Europe's gas into greater international influence.

But energy turned into a political boomerang when the Russian gas monopoly Gazprom restricted supplies during a New Year's pricing dispute with Ukraine that disrupted exports to Europe for the first time in four decades.

Europe has scrambled to seek alternative supplies, and the U.S. vice president, Dick Cheney, has accused Russia of using energy as a tool of "intimidation and blackmail" against its neighbours.

Tempers have cooled of late, and the debate has moved toward finding ways to carry out the International Energy Charter, a document signed but not yet ratified by Russia that calls for open access to energy resources and pipelines.

Putin, at a Russia-European Union summit meeting last month, said he was ready to discuss implementing the charter.

But Putin said he would consider ending Russia's gas-exporting monopoly only if Gazprom gained access to distribution and marketing assets in Europe.

Kudrin said energy was a two-way street, and that exporters needed "security of supply" to justify major investments to meet growing demand that has pushed oil prices over $70 a barrel.

"The rise in energy prices over the past year wasn't a supply shock, but a demand shock," Kudrin said.

He also played down the chances that non-Russian companies might gain access to Gazprom's export pipelines soon, adding that the energy charter needed a lot more work done on it.

With Henry Paulson Jr. yet to be confirmed as U.S. Treasury secretary, the departing secretary, John Snow, will take part in the St. Petersburg talks, reducing the likelihood of any major statement on the relatively weak U.S. dollar.


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