Geopolitical Research Institute(GRI)/Εταιρεία Γεωπολιτικών Ερευνών(ΕΓΕ)

Τρίτη, 19 Οκτωβρίου 2010

Energy security: The battle for the pipelines

18 mei 2010 (MO) - The pipelines that are under construction today – Nord Stream, South Stream and Nabucco – determine the energy security of Europe tomorrow. ‘One can not understand current international policy if one has no eye for the energy dimension.’
Barroso: ‘An increased energy security will be one of the top priorities the next years’.
In April 2010 a joint venture will start with the construction of Nord Stream, a gas pipeline of 1220 kilometers, that connects Russia with Germany. Since mid February – 13 years after the first feasibility study - all the necessary environment and transit permissions are acquired.

At the bottom of the Baltic Sea, Nord Stream will run through the exclusive economic zones of Russia, Sweden, Denmark and Germany. ‘Nord stream will make an important contribution to the European energy security’, promises director Matthias Warnig. When completely finished, the pipeline can transport 55 billion cubic meters a year from Russia to Germany. Enough to provide power to 26 million families a year long.

From Germany the gas could be further distributed. The Russian energy Giant, Gazprom, that owns 51 percent of the shares  of Nord Stream, has already made long-term contracts for this with Denmark, The Netherlands, Great-Britain, France and Belgium.

For Moscow, the Nord Stream project is a top priority in 2010. With the pipeline, from now on Russia can escape the transit of gas through Ukraine and Belarus – countries with which the Kremlin had been frequently fighting. The other way round, a few mid-European countries fear that Russia in the future would be able to close the gas tap without Germany or other Western European countries having to face the consequences of it.

‘In the Baltic States, they feel the hot breath of the Russian Bear’ says Professor David Criekemans (University of Antwerp, Royal Military School and Flemish Centre for International Policy), expert in geopolitics. ‘The Nord-Stream is even compared to the Molotov-Ribbentrop Pact. The fear is that Russia in times of crisis could create a polarization within the EU, between Eastern European countries who run out of gas and Western European countries who can quietly continue consuming’.

PIPELINES CREATE STABILITY
Pipelines create interdependencies between producers and consumers, because it can’t be diverted. Ships and tankers you can displace, but pipelines are fixed. If you invest billions of euros in constructing pipelines, then you want to be assured of guaranteed supply of gas and a stable relation between producer and consumer. In that sense pipelines are good for the energy security. They create stable relationships: the seller needs to use the pipeline. And if that pipeline goes from Russia to Europe, then it doesn’t go from Russia to China. Russia can’t just decide not to deliver the gas to Europe, and to deliver to China in return, because the geographic location of the pipeline can not be changed.

Natural gas gaining importancy

The joint venture behind Nord Stream shows that the pipeline will help Europe reaching its goals for climate change by replacing oil and carbonates. Gas is having the lowest CO2-emisson of all fossil fuels, fifty percent less than carbonates. Professor Criekemans agrees. ‘We are experiencing a shift from oil towards natural gas. If countries want to shift into more energy-efficient technologies, they are almost automatically forced towards natural gas. Added to that, the offer of natural gas is even more expanded than that of oil’.

According to the International Energy Agency worldwide there are more than 180 trillion cubic meters of proven gas reserves - good for still sixty years of production on the current level. Criekemans: ‘a positive element is that natural gas is often to be found around coastal areas, therefore there is a better spread of natural gas than oil. Nevertheless, you can not ignore a number of dominant players as the Russian Federation, Iran and Qatar. Russia possesses a quarter of all the gas in the world.‘

In any case, it is clear that the worldwide demand for natural gas will only increase in the future - according to the International Energy Agency with more than forty percent within the coming twenty years. In the European Union gas is responsible for a quarter of its energy supply. Sixty percent of it is already imported now. Because its own production will only decrease more, the import will increase to eighty percent by 2020, as calculated by the European Commission.

A cold winter in Kiev

That Europe is getting more dependent on imported gas is not even a point from the point of view of energy security, as long as it imports gas out of different regions – differentiation is the key. But the problem is that a number of European states depend for hundred percent on Russian gas: Bulgaria, Estonia, Latvia, Lithuania, Finland, Romania and Slovakia.

The danger of being too dependent of Moscow got clear when in the beginning of 2006 Gazprom closed its gas tap to its neighboring country, Ukraine. Kiev had benefitted for years a privileged tariff, but Russia wanted to start raising their tariffs.

Moscow and Kiev didn’t find a compromise, Gazprom endured and it became a cold winter in Ukraine. The decreased pressure in the gas wires who ran from Ukraine to Western Europe, was nevertheless noticeable in other European countries too. On top of that, in the same month, the supply of Russian gas into Georgia got cut by explosions in the Mozdok-Tbilisi pipeline.

‘The gas crisis of 2006 was a work group for European policy makers’, says Criekemans. Experts warned not to depend too much on Russian gas. In the year 2006 Europe imported a quarter of its gas from Russia. And this dependency has only increased. Today 42 percent of the European import comes from Russia, 24 percent from Norway, 18 from Algeria and 5 percent from Nigeria.

Except due to political conflicts the supply of Russian gas can also be hindered due to infrastructural problems. Criekemans: ‘A big part of the giant pipeline network in the whole Russian Federation is very outdated. Thus big investments are necessary.  When energy prices were high and foreign exchange came into Russia, Putin has taken the decision not to use them to renew the pipelines, but to pay off the foreign debt’.

Since Gazprom got severely hit by the economic crisis (according to the Moscow Times the Gazprom stock value in May 2008 was more than 255 billion dollars, but fell back due to the economic crisis to 98 billion euros), today it has no money in stock at all.

NABUCCO

In the aftermath of the Russian-Ukraine gas conflict, one project came more and more into attention: Nabucco, a pipeline that has to transport gas from the Caspian Sea region to the EU and thereby doesn’t cross Russia. The first talks about Nabucco took place in 2002.

Criekemans: ‘After the first meeting, the consortium of participating companies (OMV, MOL, Transgaz, Bulgargaz and Botas) went to the State opera of Vienna and saw Nabucco of Guiseppe Verdi- the story of the Hebrew Jews who got suppressed by king Nebukadnezar in Babylon. In a beautiful pr-story, this is then immediately linked to the suppression of the EU by Russia.

They played it very smart, because they got extra European financial resources. It got a political project, and the European Commission for the first time saw an opportunity to favour it’s geopolitical position more.’

On July 13 2009 Austria, Hungary, Romania, Bulgaria and Turkey signed an agreement on Nabucco. That meant the legal fundament for the gas transit through these countries. The construction of this pipeline itself is planned for 2011. But a problem that is still on the table is the supply side. Criekemans: ‘If Nabucco- in the spirit of the opera of Verdi- wants to avoid the Russian federation, where will the gas come from than?’

On the website of Nabucco it sounds ambitiously that the pipeline will transport gas from Azerbaijan, Turkmenistan, Kazakhstan, Egypt, Russia and later on Iran. It is to be investigated whether gas of Irak could also be linked to Nabucco or not.’

According to Criekemans, the supply side is no longer guaranteed. ‘Iraq raised questions about stability and feasibility. Iran poses a political problem, the United Stated wouldn’t like it. Then you have Azerbaijan, but in the meanwhile it sells a small volume of gas to Gazprom. The main candidate is Turkmenistan, that probably possesses large, but not yet all proven gas stocks. But Russia buys gas from them as well, to sell it subsequently to the EU or other parties. Does Turkmenistan still have supplies?’

Not only from Russia there is competition, but also from the East: recently Turkmenistan opened pipelines to Iran and China.’

‘It would be a good thing if Nabucco comes’, says Criekemans, but I think Nabucco in its current shape is almost dying. Russian played it excellently. In fact Nabucco has been almost totally negotiated away diplomatically. The answer of Russia is called ‘South Stream’.

South Stream

‘The goal of the South Stream-project is to strengthen the energy security’ , according to Gazprom. ‘It is also a step further in the Gazprom-strategy to diversify the supply routes of Russian gas.

‘The pipeline has to transport gas from Russia to Southern Europe without thereby being dependent on Ukraine or Belarus. The route goes through the Black Sea, then through Bulgaria, Serbia, Hungary and Greece.

‘All the European states negotiate individually’, says Criekemans. ‘They don’t keep each other up to date on the conversations they have with third parties. In March 2009 Hungary announced that it would enter the South-stream project. Nevertheless Budapest was the most anti-Russia and one of the main proponents of Nabucco. But according to the Hungarian Prime Minister the second energy crisis with Ukraine had opened their eyes’.

That second energy crisis took place in January 2009. Criekemans: ‘The Ukrainians couldn’t pay the bills of Gazprom – which was the ideal inducement to Gazprom to freeze the gas supply. Compared to the earlier gas crisis Ukraine itself did not play a totally clean role.’ Consequence: Bulgaria, The Czech Republic, Slovakia, Austria and Greece got less gas.

Belgium in general supports the diversification of energy sources and is by consequence not against Nord Stream, South Stream nor Nabucco- with the understanding that Belgium has no direct interest in Nord Stream nor South Stream.  Criekemans: ‘There are the economists who say it is ridiculous to develop South Stream ánd Nabucco parallel to each other. It would be way too expensive and useless on top of it. But geopoliticologists say: it contributes to a certain level of diversification.

On the other hand, everywhere where the EU attempts to diversify, Gazprom is ready to give a counter-answer. There is the wild idea to build a pipeline from Nigeria, through the Sahara, in the direction of Algeria and Libya. The Gazprom reaction? : ‘We buy ourselves in’.

European energy policy

The call for a European answer on the energy-challenges always sounded louder. On July 15 2009 the European Commission issued a regulation to improve the security of gas provision in Europe. That obligated the member states to create clear and effective emergency plans: they are being obligated to work closely together in case of crisis, including by sharing data and information with each other about gas supplies.

Commission President Jose Manual Barroso:  ‘An increased energy security will become one of the top priorities the next years. We have to ambition an optimal situation, but preparing for the worst at the same time. Europe has to take lessons out of earlier crisis and ensure that European citizens will never be in the cold anymore without having any blame in this.’ The regulation will only take force when it is approved by the Summit and the European Parliament.

Furthermore, the Commission has establishing a second energy plan, a total package that includes improving the energy solidarity between the member states. The first action plan dates from 2007. It imposed the 20-20-20-goal (20 % renewable energy, 20% less greenhouse gases and 20 % energy saving), as well as the liberalization of the internal market.

The new energy action plan is based on the second Strategic Energy Review of the Commission, wherein is also a specific chapter about energy security. The Commission advocates the support of new pipelines and infrastructure projects, including more interconnections between the different national gas markets inside the EU. The Commission also wants the EU to speak with one voice in cases about energy security.

Finally the Lisbon-Treaty, that is in power since the end of last year, is extending the powers of the European Union on energy issues. The European Parliament and the Summit can from now on take measures to guarantee the continuity of energy supply and to improve the interconnection of energy networks. ‘One notices there is a clear general will to speak more and more with one voice’, it sounds in diplomatic environments.

‘But it doesn’t go that far as for example the involvement of the German energy group RWE with Nabucco would suddenly be arranged in European way.’ European member states retain the right to choose their energy sources themselves and to determine the general structure of their energy provision.

NATO: difficult to predict

The NATO is not silent about the energy topic neither. In the year 2010 NATO produces studies on energy security and exchanges information to determine trends in the long term. Apart from that the alliance is working on a new Strategic Concept- a kind of Statement of Principles- wherein is described what it should be involved in in the future. Therein the new security challenges like energy-supply is pivotal.

But which role the NATO concretely determines for itself in energy matters, remains difficult to predict. ‘Of course there are security-issues’, says Cristof van Agt, researcher on the Dutch Institute for International Relations Clingendael. ‘But NATO is not that kind of organization that should be occupied with the policy dialogue with products on energy-provision security, or the conditions for the closing and compliance of a contract between parties. That is not the right signal in a sector where economic and commercial considerations should be decisive.

Break with Russia

A legally binding multilateral instrument that is talking about closing energy contracts is the Energy charter Treaty. Van Agt: ‘It is about the protection of investments, transit flows of oil and gas and the trade in energy materials. ‘The Treaty was signed in 1994, short after the Cold War, when the impression was alive that the Russian energy sector would also just join the Western market model, and Russia would make a transition towards a free market economy.

Van Agt: ‘ Fifteen years later Russia says: ‘All these western rules about investments protection, transit and third party access and how it is expressed in the Energy Charter Treaty, are outdated, we put them off the table.’ In 2009 Moscow withdrew its signature from the Treaty.

There is a fundamental confidence issue between what Europe- and the transatlantic world- wants and what Russia wants. The underlying motives are Kosovo, the enlargement of the NATO, 9/11, Iraq and Afghanistan. This has all caused the break. Russia started profiling more on energy- since it is the instrument with which it can exert the most influence.‘ However van Agt is not pessimistic. The phase in which we are now offers chances to see how much sense the recent developments on the energy field make between Europa and Russia.

Eye of the storm

The momentum that van Agt alludes to, is the result of a combination of two factors. Firstly, due to the economic crisis the gas demand had decreased significantly – what does not exclude moreover that in all cases in the long run it will increase again.

Secondly, LNG (liquid gas) and unconventional gas is on the rise worldwide. Unconventional gas is gas that is located in certain geological formations and that since recently, thanks to a new drilling technique - hydraulic facturation - on an ecologically feasible way can be mined. In the United States the mining of unconventional gas has redrawn thoroughly the energy picture in the last three years. The US now has to import less LNG, that as a matter of fact is increasing the LNG-supply in Europe.

The research for unconventional gas has also started in Europe. In Germany, Poland and Austria energy companies are performing the first tests. The International Energy Agency estimates that in Europe 35 trillion cubic meter is available. That would be enough to replace the gas import for 40 years on the current level.

These recent developments can contribute to the return of the tranquility in the energy world somehow. Van Agt: ‘That the demand for gas will increase, is undeniable. But the current phase can create a breathing pause to reflect with producers and consumers about the way we deal with each other.

We are now in the eye of the storm. This is the time to talk well with each other for once, before the wind will start to blow heavily again later on. The storm may then erupt even more violently than in the past. Later the economic grow will return, but in the meanwhile not enough investments are done to meet the future demand. In other words: now is the moment to take a deep breath and to have a calm debate on how we will arrange energy security with each other.

WITHOUT ENERGY GLASSES YOU ONLY SEE HALF OF THE STORY’
‘Geopolitics say you have to take into account various variables in order to understand current events. Not only economics and politics, but also for example geography, demography or energy’, says Professor David Criekemans. ‘If you don’t wear the energy glasses, you only see half of the story. You can’t understand current international politics if you have no eye for the energy dimension. All actors are taking position: Russia, China and the US.’

On the other hand, you can not relate recent developments to energy alone, warns Cristof van Agt of Clingendael. ‘If energy is a driving force, it is definitely not the only or biggest driving force. The agendas got mixed after 9/11, a bit like a bad watercolor painting. The media has given energy an exaggeratedly big role. Therefore the idea exists it is all about oil and gas.

I am not saying it doesn’t have to do anything with it, but energy is not the decisive motivation in security issues. Whether it is about Iran, Iraq or Afghanistan, or about the consequences of the economic developments of countries like China and India. Energy plays a derived role of course, but its weight is exaggerated in the public field. The irony is that the administrative domain consequently gets influenced again by that public area. Like this, policy myths are being created whereby eventually the whole social system gets puffy and starts to hyperventilate.‘

I don’t think it is only about energy, but about trade interests between Europe and Russia in general. The bigger geostrategic interest between the two is the necessity to be able to walk through the same door with each other in the Eurasian house. Therefor, energy is an important element, but in a broader package.
Belgian gas import 2008 (in m3)
Total: 17.424 million
The Netherlands:  7022 million
Norway:   5715 million
Qatar:   2324 million
Russia:   906 million
Great-Britain:  819 million
Source: The International Energy Agency

NORD STREAM
Goal: Gas supply from Russia to Germany that does not run through Ukraine nor Belarus
Route: Baltic Sea, through the Exclusive Economic Zones of Russia, Sweden, Denmark and Germany.
Costs: 7,4 billion euros
Length: 1220 kilometers
Capacity: 55 billion m3 gas per year
Deadline: the first gas will flow through the pipeline by the end of 2011. The whole project must be finished by 2014.
Company: Nord Stream AG is an international joint venture. Gazprom has 51 percent of the shares, the German companies BASF and E.ON each 20 percent and the Dutch Gasunion 9 percent.

SOUTH STREAM
Goal: Gas supply from Russia to Southern Europe that does not run through Ukraine nor Belarus.
Route: Via the Black Sea, then Bulgaria, Serbia, Hungary, Greece and Slovenia.
Costs: 19 to 24 billion euros
Length: 900 kilometers through the Black Sea
Capacity: 63 billion m3 gas per year.
Deadline: end of 2015
Company: the offshore portion is realized by a joint venture of the Russian Gazprom and the Italian ENI.

NABUCCO
Goal: Gas supply of the Caspian Sea region to Europe, not running through Russia.
Route: Turkey, Bulgaria, Romania, Hungary and Austria
Costs: 7,9 billion euros
Length: 3300 kilometers
Capacity: 31 billion m3 gas per year
Deadline: in 2014 Nabucco can be used. The whole project should be finished by 2015.
Company: Nabucco is a joint venture of OMV (Austria), MOL (Hungary), Transgaz (Romania), Botas (Turkey) and RWE (Germany)

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