Russian energy: Europe's pride,
US's envy By M K Bhadrakumar
Buried beneath the heaps of hot words on
North Korea's nuclear test, the announcement in
Moscow on Monday about the Shtokman natural-gas
deposit off Russia's Arctic coast almost escaped
attention, despite its comparable lethal fallout
in world politics.
Undoubtedly, Gazprom's
statement shook up the world energy scene - and
the calculus of European politics. Gazprom, the
Russian gas monopoly, announced that it would
develop on its
own
without foreign companies the fabulous Shtokman
deposit, holding an estimated 3.2 trillion cubic
meters of natural gas and 31 million tonnes of gas
condensate in the Barents Sea, 360 kilometers off
the coast, at a depth of 320 meters.
And
most significant, Gazprom also said it would send
most of the gas from the giant Arctic Shtokman
field to Europe, rather than to the United States.
Shtokman was initially expected to yield
30 billion cubic meters (bcm) of natural gas
annually, of which 22-24bcm would be converted
into 15 million tons of liquefied natural gas
(LNG) to be exported by ship to the US. With
design capacity achieved, the field will be able
to produce 70-90bcm, which is more than, say,
Norway's entire annual output.
It is
estimated that the first stage of the project
alone requires an investment of US$12 billion to
$14 billion. The shortlist of companies competing
for the project included Norway's Statoil and
Norsk Hydro, France's Total, and US giants Chevron
and ConocoPhillips.
Gazprom was
considering giving 49% of the Shtokman project to
foreign companies, but its chairman, Alexei
Miller, stated in Moscow on Monday, "Foreign
companies failed to offer assets commensurate with
the volume and quality of the Shtokman deposit's
reserves." Gazprom will now instead consider
appointing foreign companies as "contractors".
The Gazprom announcement came as a
bombshell on the eve of President Vladimir Putin's
visit to Germany on Tuesday - the fifth
Russian-German summit this year - and confirmed
Putin's sensational statement in Compiegne,
France, on September 23 at the trilateral
French-German-Russian summit that Gazprom may
decide to redirect a part of Shtokman gas to the
European markets.
The Gazprom decision
signifies a complete reversal of policy insofar as
North America was intended to be the project's
main destination. (The Shtokman gas deposit has
enough gas for 50 years of deliveries to the US.)
In fact, at a meeting with US President
George W Bush in Washington last October, Russian
Industry and Energy Minister Viktor Khristenko was
on record that "I think two or three companies
should be chosen in the end [for Shtokman] and the
selection will largely depend on how effective
their programs are for long-term presence on the
American market", because "the first phase of the
Shtokman project will target the US market only".
The project figured in the Russian-US political
consultations at the highest level in the recent
years, including through influential back
channels.
Monday's Gazprom announcement
said that Shtokman gas would now be sent mostly
through the North European Gas Pipeline that is
being constructed under the Baltic Sea with German
collaboration, rather than shipped as liquefied
gas to the US as originally planned. This
decision, the statement said, was "proof that the
European market is the most important for the
company". Moscow daily Pravda said that by
this decision, Putin is creating a "new axis in
Europe to oppose US hegemony". The newspaper
commented, "It is an open secret that Russia,
France and Germany stand against the establishment
of the unipolar world structure."
At any
rate, speaking at a joint press conference in
Compiegne on September 23 in the presence of
Merkel and French President Jacques Chirac, Putin
dwelt on Russian-French-German trilateral
cooperation. He said: "This tripartite format is
both in demand and produces positive results in
practice. We see this format as a good and
reliable mechanism to coordinate approaches and
develop joint initiatives in the spirit of our
strategic partnership."
Interestingly,
Putin also revealed that Moscow's decision to
supply gas from Shtokman deposits to Europe
emanated out of a suggestion from Merkel "not so
very long ago". Putin pointed out that about 55bcm
of gas to Germany were being delivered annually by
Russia at present, while the supply from Shtokman
alone could turn out to be 25-45bcm of gas per
year.
Putin said, "You can imagine what
kind of quantities we are talking about here, and
what this would mean for the European economy and
for the German economy. This deposit has enough
reserves to ensure supplies for 50-70 years. This
creates an absolutely stable and sustainable
situation in the economy and on the European
energy market, above all in the energy sector in
Germany."
The Russian-German "axis" in
energy came into even sharper focus during Putin's
subsequent two-day visit to Germany this week.
Speaking in Dresden in the presence of Merkel,
Putin said, "Judging from all appearances, our
[Russian-German] cooperation could be even more
large-scale, as a result of which Germany could
turn from a simple consumer of Russian gas and oil
to a large center for the European distribution of
these products."
Putin underlined the
strategic significance of the Russian-German
partnership by saying, "We are linked by the
common goals of building a unified and prosperous
Europe, dedication to the principles of building a
just world order, and the aim of effectively
countering international challenges and threats."
Western commentators have rightly analyzed
that the Gazprom decision on Shtokman ought to be
viewed against the background of the broader
increase in perceived US hostility toward Russia.
The point is, Gazprom's decision hits US interests
hard. There cannot be two opinions about that.
Shtokman gas would have diversified US
suppliers, now mostly in the Middle East, Africa,
and Trinidad and Tobago. Participation in the
project would have been highly profitable business
for US oil majors.
The Bush administration
had strongly pitched for the award of the project
to US oil majors. Many would have thought that the
administration's pressure tactics vis-a-vis Moscow
in the past year or two were in actuality in the
good old American Wild West tradition of hedging
the Kremlin toward making decisions that favored
the US oil majors interested in securing a major
chunk of the business spinoff from the vast
Shtokman deposit.
Thus the Wall Street
Journal described the Russian decision as a "snub
to Washington". In recent months alone, Moscow has
seen acts of hostility in Washington's policy
toward Russia on several fronts. Moscow is greatly
frustrated at what it perceives as Washington's
foot-dragging on the deal involving Russia's
membership in the World Trade Organization. The
contrived nature of recent US sanctions against
the Russian arms industry irritated Moscow as they
were patently aimed at warding off the growing
challenge to US arms exports.
Certainly,
Moscow has been annoyed by the calibrated
Anglo-American campaign in recent weeks against
Gazprom's move to acquire a 25% stake in the
Sakhalin 2 project, Russia's first LNG venture, in
which Shell holds a 55% share (as per a 1994
agreement when oil was selling at $20 per barrel
and Boris Yeltsin was ruling Russia).
In a
provocative move, a US Energy Department spokesman
waded into the controversy by saying on September
21 in Washington, "We hope that the government [of
Russia] and these multilateral corporations are
able to reach agreement in a way that respects the
rule of law, continues to provide oil to the
markets and demonstrates that Russia is open to
foreign investment."
The Guardian
newspaper warned that the controversy prompted a
British demarche and "could spark a diplomatic
row" between London and Moscow. A Downing Street
spokesman was quoted as saying on September 24,
"The government is raising its concerns about the
decision with the Russian government. Downing
Street is following this very closely."
Again, Moscow openly blamed Washington for
encouraging the anti-Russia policies of the
Georgian leadership of Mikhail Saakashvili. In a
formal letter addressed to the Organization for
Security and Cooperation in Europe in the context
of Russia's recent spy scandal with Georgia, Putin
refuted the organization's pretensions of playing
(at Washington's instance) a mediatory role in
Russian-Georgian relations.
Similarly,
North Atlantic Treaty Organization expansion into
the territory of the former Soviet republics
continues to simmer as a major factor in
Russian-US relations. On September 22, the Russian
Foreign Ministry warned in a statement, "The
accession of Georgia to the current unreformed
NATO structure would seriously affect Russia's
political, military and economic interests, and
would have a negative impact on the fragile
situation in the Caucasus."
The statement
added, "Any kind of NATO expansion results in
considerable changes in the security outlook. But
the case with Georgia is of particular importance
due to its geographical proximity to Russia, and
because of its obvious complicity in Caucasian
problems."
Equally, Moscow's response has
been sharp about the US move to deploy elements of
the US national-defense missile system in Poland
and the Czech Republic. Moscow does not buy the
specious US plea that it is deploying the
silo-based interceptor missiles in these countries
as part of the "war on terror".
Symptomatic of the prevailing climate of
Russian-US relations, a document has been
circulating in Moscow circles lately titled "On
the Probable Scenario of Actions of the United
States in Relation to Russia in 2006-2008".
Authored by Valentine Fallin, prominent Soviet
historian-diplomat and formerly secretary of the
Communist Party central committee, and Gennadiy
Yevstafsyev, retired general of the Foreign
Intelligence Service, the 35-page analytical
report circulated among members of the duma
(parliament) claims that Washington is conspiring
to stage a "color revolution" in Russia during the
transition from the Putin presidency.
The
report judges that if the Bush administration's
hostile policies toward Russia have remained
frustrated so far, that is because of the
Kremlin's energy diplomacy and political
independence; the popular Russian mood; the
reevaluation of values by the Russian political
elite in relations with the West; and the search
for a new identity where the elite has begun
defending Russian national interests.
Without doubt, Gazprom's decision
regarding Shtokman reflects the Kremlin's sense of
frustration that any real thaw in the current
chill in Russian-US relations is not to be
expected in the near future. The Gazprom decision
reflects at the same time the mood in Moscow not
to cave in to US pressure.
In this regard,
Foreign Minister Sergei Lavrov assertively stated
Moscow's policy line in a major speech at the
World Affairs Council in Los Angeles in September.
Lavrov said: "My opinion is that the rapid pace at
which Russia has been rebuilding its independence
in foreign policy is one of the factors that has
put a strain on our relations, as too many people
in the US have yet to get accustomed to it."
Lavrov made it clear that this was not a
pitiable Russian lament. He said, "But it is
necessary to get used to it [Russia's independent
foreign policy]. After all, we take for granted
the US's independence in choosing the instruments
to defend its national interests on the world
stage."
Elsewhere in the speech, Lavrov
said "flexible alliances" were needed to resolve
international problems more efficiently, unlike
the alignments of the Cold War era, "which are no
longer capable of responding to changing
realities". Arguably, the diversion of the
Shtokman gas for Europe; the emergence of Germany
as the hub of Russian energy supplies for Europe;
the format of the trilateral Russian-French-German
cooperation - all these are elements of this
Russian policy of forging "flexible alliances"
with countries of Old Europe, with which it has a
convergence of interests as regards a multipolar
world.
The tenacity of Russia's incipient
"flexible alliance" with France and Germany in the
coming period will be of great interest for
Washington's trans-Atlantic concerns. Washington
draws comfort that Chirac's presidential term is
ending next year.
Chirac has transmuted
his warm friendship with Putin as state policy.
After their meeting on September 23, Chirac
conferred on Putin the Legion of Honor, the
highest French state award. Chirac said on the
occasion that France highly valued Putin's
contribution toward developing the two countries'
multi-faceted cooperation. Putin responded: "I
want to assure you, the people of France, that I
will try to make an even greater contribution
towards strengthening the friendly relations
between our people and states."
Washington
has viewed with dismay Chirac's "complicity" in
the recent purchase of a 5% stake by Russia's
Vneshtorgbank in a highly sensitive sector of the
European industry - European Aeronautic Defense
and Space Co.
Washington has been hopping
mad about Russia's accelerating energy integration
with France and Germany. The entire agenda of
Washington acting as a negotiator on the European
Unions's energy dealings with Russia is coming
unstuck - and, with it, Washington's aspirations
to perpetuate its trans-Atlantic leadership role
in the post-Soviet era.
Plainly speaking,
Gazprom's decision on Shtokman implies that as of
today there are no major plans on the anvil in the
Russian energy sector aimed at the US market. This
is a dismal legacy for the Bush administration,
which is supposed to be tied to the US oil
industry by the umbilical cord. More to the point,
this comes at a juncture when, flush with funds,
Moscow is embarking on several new gas-production
projects in the Far East, the Yamal Peninsula, the
Arctic Shelf and other areas. US oil majors are
simply being kept at arm's length from Russia's
massive oil and gas reserves.
Moscow has
evidently estimated that from a strategic angle,
in the prevailing climate of Russian-US relations,
it is prudent not to get entangled with Washington
in the sensitive sphere of energy that is so
central to Russia's resurgence as an effective
player on the world stage.
The United
States' energy-security concerns, on the other
hand, will suffer if Russia remains focused on the
markets in Europe and the Far East. The European
market is steadily growing. In 2005, EU countries
consumed about 470bcm of natural gas, while by
2010, according to the International Energy
Agency, consumption is to reach 610-640bcm. The
EU's policy of tough restrictions on
greenhouse-gas emissions under the Kyoto Protocol,
as well as the inability of renewable energy
resources to compete with traditional sources,
will also cause an increase in natural-gas
consumption in Europe.
Forecasts for 2020
show that the EU's dependence on natural gas will
grow from its present 40% to 70-80%, and Russian
gas exports to the EU in the same period will
increase from 26% at the moment to 40-50%. This
high level of dependence cannot but compel EU
countries to enhance their level of political
interaction with Russia.
Washington had
counted on the change in German leadership as
being a good thing for slowing down the emerging
Russian-German energy (and political) axis. There
were expectations in Washington that Merkel would
put the brake on Germany's cooperation with
Russia. The Bush administration passionately wooed
Merkel toward this end as soon as she rose to
power in Berlin.
But Washington is
realizing that instead of wasting time and
resources on debatable issues such as Putin's
democratic instincts, Merkel's policy seems to be
increasingly guided by realistic considerations of
Germany's medium- and long-term economic interest
in consolidating a reliable partnership with
Russia. This leaves Washington in the inelegant
company of the pack of "New Europeans" from East
Europe and the Baltic region to keep the flag of
anti-Russia animus flying within EU forums.
Thus the Bush administration was counting
on the German presidency of the EU next year as
heralding a period of stepped-up EU pressure on
Russia on issues of Russia's relations with the
countries of the Commonwealth of Independent
States. The US expectation was that Berlin would
haul Moscow over the fire on the issue of the
"frozen conflicts" in the post-Soviet space.
However, Germany does not seem to be interested in
following the US script in ratcheting up EU-Russia
tensions.
On the contrary, the German
Foreign Ministry has reportedly prepared a paper
titled "The German EU Presidency: Russian,
European Neighborhood Policy and Central Asia"
that aims to tighten the EU's relations with
Moscow. The paper states that "Russia will play a
central role in the German EU presidency".
The paper envisages that EU policies
should aim at actively engaging Russia and the
former Soviet states so as to bring them closer to
Europe. The subtext of the paper is, as could be
expected, Europe's increasing dependence on Russia
for meeting its energy needs.
Instead of
adopting a critical approach toward the Gerhard
Schroeder legacy, as the Bush administration would
have expected Merkel to do, the German Foreign
Ministry paper highlights the energy ties with
Russia that were vastly strengthened by Schroeder
during his term as chancellor from 1998 to 2005.
Berlin reportedly apprised Putin in
advance of the parameters of the proposed policy
guidelines to be pursued during Germany's EU
presidency, and the Russian leader apparently
liked them.
M K Bhadrakumar
served as a career diplomat in the Indian Foreign
Service for more than 29 years, with postings
including ambassador to Uzbekistan (1995-98) and
to Turkey (1998-2001).
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