EUROPE: Russian Gas May Escape Politics

By Zoltán Dujisin Reprint | | Print |

Analysis by Zoltán Dujisin

BUDAPEST, Aug 28 2007 (IPS) - Many European politicians look desperately for alternatives to Russian gas, but while concerns over excessive dependency on one source are legitimate, many have missed the point that in the big energy game economic considerations weigh more heavily than political ideology.

The European Union (EU) and Russia are mutually dependent and have generally shown interest in balanced relations, but unlike in countries such as Germany, France or Italy, many of the former socialist EU members have been suspicious of cooperating with the successor state of the Soviet Union.

Russia’s recent as well as its more traditional ideological opponents were quick to blame Moscow’s “imperialistic” foreign policy for the disruptions in gas deliveries caused by price disputes with transit countries over the last two years.

When Gazprom, Russia’s energy giant, decided in the winter of 2005 to raise the price of gas exports to Ukraine to market levels, the “energy weapon” theory quickly made it into much of the European press.

This was in view of Ukraine’s recent shift to a more Western-oriented foreign policy and its rhetorical commitment to free market economics. Yet when one year later Russia’s alleged ally, Belarus, found itself in the same position, the ideological dimension of the theory couldn’t hold.

More than the politics of Russia, “Europe fears the size of Gazprom,” András Deák, energy affairs expert at the Hungarian Institute of International Relations told IPS. Tellingly, the EU’s calls for the liberalisation of Russia’s energy market are contradicted by Europe’s limiting or excluding Russian capital from its own economies.

In view of Gazprom’s size, which as any other company wishes to control its product from production to consumption, European countries are well aware of the monopolising tendencies it would bring into their economies.

Deák thinks this argument would be better accepted by Russians than what he calls the “energy weapon” myth. The analyst points out that Europeans have mistaken cause for effect, and that in Russia it is business that determines policy, not the other way around.

Russia’s energy policy “is a structural problem, not articulated against anyone,” says Deák, who describes Russia as a clan, not a state economy. “Politics and business come together because you can only get business positions through politics.”

The analyst does not, however, deny that dependence on one source causes energy vulnerability. He adds that while the gas business is a business, it is still a dirty business.

Russia will cover the bulk of Europe’s gas needs in the future. It has a quarter of the world’s gas reserves, 60 percent of them belonging to Gazprom. To the gas monopoly belong the largest pipeline network in the world at 150,000 km. Gazprom is also responsible for producing a yearly 580 billion cubic metres (bcm) of natural gas, which covers more than Europe’s annual needs.

Europe’s efforts at setting up a common European energy policy and at locating alternative sources of gas will not go unnoticed to Gazprom’s officials, who are unlikely to sit and watch as Europe tries to outplay them in the European market.

For one, Gazprom controls its European clients, and resists attempts at establishing common European policies by signing contracts forbidding individual countries from re-exporting gas.

But another struggle has been far more in the public eye as Europe and Russia seemingly compete on who will fill the hole in Europe’s gas network system in the Balkans.

Russia wants an alternative to the problematic Ukrainian transit by delivering gas through Turkey into the Balkans and Central Europe. Europe’s idea is rather to find alternatives to Russian gas through the 30-year-old Nabucco pipeline proposal. This is a proposed natural gas pipeline that is planned to transport natural gas from Turkey to Austria via Bulgaria, Romania, and Hungary.

The EU has failed to fund this 5-billion euro project, the largest investors are backing out, and its supposed sources of natural gas, with the exception of tiny Azerbaijan and the Middle East, are now in Gazprom’s hands.

Moreover, while rhetorically maintaining its commitment to Nabucco, the long-term contracts signed between several European energy giants and Gazprom seem to contradict Europe’s good words. One of the most blatant examples is the Northern Pipeline, a project that will link Germany directly with Russia through the Baltic Sea.

Russia’s response to Nabucco has so far been a proposal to extend the Blue Stream pipeline into the Balkans, using a route similar to that of Nabucco and avoiding Ukrainian transit. Blue Stream is a major trans-Black Sea gas pipeline that carries natural gas from Russia into Turkey.

Deák, however, believes neither pipeline will be built. The planned route for the extension of Blue Stream would make its construction extremely costly, and the analyst thinks it was Gazprom’s intention to simply provide a strategic response to Nabucco, without really meaning it.

The more realistic solution to connect Turkey to the European markets through the Balkans will be “a merging of the two projects,” says Deák, and this is unlikely to materialise unless Gazprom gets significant stakes in the project.

But Europe is also worried about not getting enough Russian gas. Russia’s domestic gas consumption is growing rapidly, though Gazprom is aware the foreign market is more profitable.

Europeans want Russia to upgrade its infrastructure, but Russian investors are unlikely to go into any sort of specific venture without assurances of long-term cooperation by an increasingly suspicious Europe.

The old continent’s wait and see attitude could turn costly as Gazprom might leave latecomers without a contract. Russian deliveries, citing lack of capacity, would become costly and unreliable except for those countries that show a willingness to commit to Russian gas.