Gas War. The “narrow” EU ways to move around Russia
Between Europe and Russia is now war. That one concerning gas. The G8 Summit in St. Petersburg on 15-17 July ended the Russian Presidency’s turn without being able to shake off the Ukrainian crisis at the beginning of the year. For the EU, the winning weapon exists: look for methane elsewhere. Only then will it be able to reduce the dependence on the Russian reserves (the world’s first), which now guarantee 25% of its consumption. A weapon, however, is likely to shoot late.
Moscow had announced the revival of international energy cooperation as the priority of its semester at the helm of the “8 Big”. In the end, however, it has brazenly demonstrated its preference to force politics.
Over the last few months, Gazprom’s President Alexey Miller has repeatedly launched an ultimatum: the Russian monopolist (held by the state for more than 50%) will close gas if Eni and other European companies do not open their respective distribution markets. More than a threat, it’s a smart bluff. Gazprom hopes that the specter of new black-out gas will be enough to surrender the Member States. He knows that it will take nearly a decade to redirect East Siberia’s methane, to the thirsty Asian and North American markets.
The EU has only to beat the opponents to the punch: diversify sources of supply before they can diversify their customers. This is the strategy advocated by the European energy commissioner Andris Piebalgs in the recent Green Paper on the future of energy security.
EU maneuvers in the Caspian and the Middle East
Moscow’s diplomacy has ultimately achieved a window dressing agreement that commits, but does not oblige, Russia and international partners to mutually open energy markets.
The only way to make a legally binding political agreement is the ratification of the Energy Charter that the Kremlin persists in not signing. So, beyond the tight ceremonial handshakes in the magnificent Winter Palace, the battle is destined to continue in the trench. Among the steppes and deserts rich with methane in Central Asia and the Arab World. With these regions, the European Commission is about to start negotiating parallel with the official one that has been dragging since 2001 with Moscow.
This continues to deny European companies access to Russian gas pipelines (at the beginning of July the Duma, the Russian parliament, formally legalized Gazprom’s actual monopoly). Thanks to them, the Miller-led giant controls not only its own gas, but also that of neighboring countries that, to arrive in Europe, must cross Russia. Here is the EU’s “Plan B”: to connect its distribution network to alternative suppliers directly, through Anatolia and the Mediterranean.
Something starts to move. From Autumn 2005 the c.d. “Baku Process” regularly brings together the western and eastern European consumer countries in the Azerbaijani capital with the Caspian producers.
“At the last meeting last February, it was decided to study ways to finance the convoy of Turkmen, Kazakh and Iranian methane to European gas pipelines,” a Piebalgs staff official said. Similar negotiations have been ongoing since 2003 with Egypt, Syria, Jordan and Lebanon, to create the c.d. “Mediterranean ring” of hydrocarbons.
The risk of delay in the race against Moscow
The ambitious European maneuver to get around the rear of the enemy is likely to jam. “There are two unknowns: the realization of pipelines for transport and the possibility of making way for alternative gas“, explains Claudio Berlingieri, energy consultant for the EU and the World Bank. Since 2003, there is a long list of priority projects on the map to extend Trans-European Networks (TEN) to gas pipelines and regasification plants.
It is a pity that the EU budget is not enough to finance works costing 100 billion euros (it can only sponsor feasibility studies). And it will have even less in the future, considering the decision of the 25 governments to cut appropriations for TENs over the period 2007-2013.
Lack of funding and poor coordination among the many countries and companies taking part in each project has so far delayed the execution of the works.
The most optimistic predictions for their completion are on average around 2011-2012. To escape the impasse, the European Commission signed last year a partnership with the transit zones of the TEN, Turkey and the Balkans. It also put in place two new interventions: the appointment of “European coordinators” in charge of resolving disputes between the various partners and greater involvement of private investors through a special loan system issued by the European Investment Bank (EIB).
The final challenge will be on suppliers
But building tubes is not enough. “To really diversify, you have to be able to buy gas from different manufacturers competing with each other,” Berlingieri insists.
The problem is that, apart from Algeria, the large alternative supply basins remain highly unstable. Today, it is impossible to sign credible long-term supply contracts with war powders such as Iraq and Iran (2nd in the world for gas reserves) or with unreliable dictatorships such as Uzbekistan and Turkmenistan (3rd World Reserve). Not to mention that their resources are increasingly controversial by the gallant economies of India and China, and Moscow is trying to create a “gas cartel” with its competitors to anticipate Brussels moves.
By the end of 2005, Putin renewed the import agreement with the Turkmen government, last March signed a co-production with the Algerian government. “The alternative is to upgrade the rigassifiers to use liquid methane transported by sea from distant countries, unreachable with gas pipelines such as Nigeria, Qatar, Caribbean, etc.,” concludes the Italian expert.
When the game is so big it takes strong geopolitical responses. Responses that the EU, united in the goals but not in the interests, will still lag behind.
Box – Diversification in figures
Italy dreams of 60 billion cubic meters of extra gas. Thanks to the TENs, Europe can count by more than 227 billion cubic meters (mld./m3) of hydrocarbons each year by 2020. Of these, 62mld will be supplied by Gazprom through two new gas pipelines coming from the Northeast. The rest will provide the 25 Member States with a large margin of diversification: 165 bld / m 3 to negotiate with different suppliers depending on the economic situation and the crisis situation. Italy will surpass 60 billion by three new gas pipelines coming from the South East. This will only meet its growing demand (which will rise from 70 to 112 billion / m3 by 2020), while reducing its dependence on Russian gas. However, EU diversification depends on two conditions. The first is that they are able to sign sufficient supply contracts to exploit the maximum capacity of the pipes. The second is that the estimates of Brussels are accurate: that is, that in the next fifteen years the introduction of alternative energies could contain the European hydrocarbon imports at the present level (260 billion barrels per million annually). In fact, this is likely to double, giving Gazprom additional margins on blackmail.
Box – The strategic RTE corridors for Italy
From Caspian (and Middle East)
1) Connection of four different projects: Azerbaijan ►Thurch (Baku-Tblisi-Erzrum – under construction with predictable entry into operation in 2008) – Turkey ► Greece (IGT – completed) – Greece ► Puglia and Marches through two parallel trunks (IGI / TAGP – unfinished work). Another variant is Nabucco (unprocessed works): Turkey ► Balkans ►Austria / Italian border From North Africa (2 new gas pipelines) 2) GALSI (uninitiated jobs): Algeria ► Sardinia ► Tuscany 3) Green Stream ): Libya ► Sicily