Moscow retreats from Ukraine bypass strategy
By Vladimir Socor
Russian Energy Minister Sergei Shmatko declared on November 16 that the Nord
Stream pipeline on the Baltic seabed would not be used for diverting gas
volumes away from Ukraine's transit pipelines to Europe. In effect, this
statement acknowledges that the Nord Stream pipeline, from Russia directly to
Germany, is not a Ukraine-bypass project.
As if on cue, the Gazprom-led Nord Stream consortium confirmed for Western
audiences that this project is not about avoiding East European transit routes,
but is simply targeting North European gas markets other than those being
supplied through the Ukrainian transit pipelines.
In a similar vein, Russian Prime Minister Vladimir Putin declared
on November 14 that the proposed South Stream project - from Russia via the
Black Sea to southern and central European countries - is intended to
"discipline Ukraine". This statement, too, implies that the undersea South
Stream is meant to pressure Ukraine, not actually to bypass it, particularly as
Russian authorities have never been able to identify gas sources to supply
South Stream.
These statements mark a political retreat from Moscow's long-standing threats
to circumvent Ukraine through Nord Stream and South Stream. Those threats had
aimed to intimidate successive Ukrainian governments into ceding control over
the Ukrainian transit system to Gazprom, lest the flow dry up.
Gazprom's threats were hardly credible, however. All along, the Russian company
lacked the means to modernize the Ukrainian transit system (unless it would
enlist allied companies in West Europe to finance the upgrades in Ukraine for
Gazprom). Moreover, the European Union and Ukraine signed an agreement in March
2009 on upgrading Ukraine's gas transit system, irrespective of Gazprom. This
agreement solidified the European interest and strategic stake in preserving
the integrity of Ukraine's gas transit system and its full-throttle operation
for Russian gas deliveries to Europe.
By the same token, Moscow's disclaimers of intent to bypass Ukraine might
discomfit certain European parties to the Nord Stream and South Stream
projects. From Germany (the main customer for Nord Stream gas) to Slovenia (the
latest entrant to Nord Stream since November 14), those parties had taken
Moscow's threats to bypass Ukraine seriously. Some conventional wisdom had it
that Nord Stream and South Stream were Ukraine-bypass projects and that their
viability rested on gas volumes being shifted from the Ukrainian system into
the two Stream projects.
At the moment, Russia wants Ukraine to consider an agreement on bilateral
cooperation in the gas sector. The Russian draft's centerpiece is a proposal on
Gazprom's participation in upgrading Ukraine's gas transportation system until
2030, apparently through a consortium arrangement. As energy minister Shmatko
admits, however, Ukrainian approval is far from assured and would have to be
sought from several power centers in Ukraine.
The Russian proposal is clearly timed to coincide with Ukraine's forthcoming
presidential election campaign. It seems designed to test the position of
Ukraine's political forces and draw support from Moscow-friendly parties and
candidates ahead of the January election, when those forces need Moscow's
goodwill more than they would later.
It looks like an opening proposal in what Moscow probably anticipates to be a
post-election negotiating process. It also adds to the circumstantial evidence
that Moscow is not holding fast to the previously intimated strategy of
circumventing Ukrainian pipelines through Nord Stream and South Stream.
Ukrainian Prime Minister Yulia Tymoshenko has promptly clarified her position:
"No matter where I am, in power or opposition, I will never allow our gas
transport system to be privatized, any consortiums to be created, or any other
states to encroach on our gas transport system. This is our national treasure,
which must permanently remain in Ukrainian state ownership."
With Russia's own gas production stagnant and its declared readiness to assume
new supply commitments growing, a wide gap has opened between Russia's actual
export potential and its declared promises of gas to external consumers. Some
of those potential consumers (notably in German business circles) reckoned with
Gazprom's monopsony to continue with regard to Turkmen gas, so as to free up
gas volumes from Russia's own production for export to Western Europe. That
expectation, however, now seems increasingly unlikely to be fulfilled.
The financial-economic crisis has compelled Gazprom to suspend its imports of
Turkmen gas since April and to downscale its declared offer to import Turkmen
gas next year and afterward. Turkmenistan's Dauletabad field, which accounted
for the lion's share of Turkmen gas exports to Russia, is now being partly
reoriented for export toward Iran.
In mid-November, Turkmenistan completed the construction of a new export
pipeline from Dauletabad, southward to Iran, with a first-stage capacity of 6
billion cubic meters (bcm) per year and a planned second-stage capacity of
another 6 bcm annually. The new pipeline, which runs in eastern Turkmenistan,
adds to the existing pipeline in the western part of the country, Korpeje-Kurt
Kuy, delivering up to 8 bcm of Turkmen gas to Iran.
Turkmenistan and China are set to inaugurate in December the new gas pipeline
from the Bagtyarlik contract area, for an ultimate volume of 30 bcm of Turkmen
gas to China via Kazakhstan. Thus, early production from newly opened Turkmen
fields is headed in directions other than Russia, in line with Ashgabat's
export diversification policy.
With Russia's monopsony rapidly losing ground in Turkmenistan, the ambitious
Nord Stream and South Stream project look even more questionable. South Stream
can hardly expect to be filled with Turkmen gas; and Nord Stream can hardly
count on Turkmen gas volumes in Russia to free up equivalent Siberian gas
volumes for export to Germany and other possible Nord Stream destinations.
Thus, Moscow now seems to backtrack from its earlier threats to bypass Ukraine
through Nord Stream and South Stream. Russia's own stagnant production, the
loss of monopsony in Turkmenistan, and - at least as importantly - the
EU-Ukraine agreement on upgrading Ukraine's transit system are at this stage
defeating Moscow's strategy to bypass Ukraine. Accordingly, Moscow is reverting
to its earlier strategy to seek control of the Ukrainian system under the guise
of a consortium formula that would include Western companies allied with
Gazprom.
Vladimir Socor is a senior fellow and long-time senior analyst with the
Jamestown Foundation. He was formerly a senior research analyst with Radio Free
Europe/Radio Liberty in Munich, and is a specialist in the non-Russian former
republics of the USSR, Commonwealth of Independent States affairs and ethnic
conflicts.
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