Russia's gas grip worries US
senator By Margarita Assenova
United States Senator Richard Lugar has
urged the Obama administration to break Russia's
energy monopoly in Europe and called on congress
to lift limitations on deliveries of liquefied
natural gas (LNG) deliveries to North Atlantic
Treaty Organization (NATO) allies in Europe.
His critical report, "Energy and Security
from the Caspian to Europe", and the proposed LNG
for NATO Act came days after Russian President
Vladimir Putin launched the construction of the
South Stream natural gas pipeline in the Russian
Black Sea town of Anapa.
Senator Lugar
urged the US administration to do more for
European energy security by supporting the
Southern Corridor
from Central Asia and the
Caucasus to Europe. He advised the State
Department to restore the high-level position of
US Envoy for Eurasian Energy Security and asked
congress to place NATO allies on an equal footing
with free-trade partners under US law when
providing for automatic licenses for US LNG
exports.
Most Central and Eastern European
countries are currently dependent on Russian gas
supplies from 60% to100% of their needs. The
report sends a strong message to US officials
regarding South Stream that energy security in
Europe is vital for America's national security
interests.
The South Stream launching
ceremony in Anapa, attended by Putin, marked the
end of the negotiations and the beginning of
actual construction work. There is no doubt now
that Putin's political project will be built, but
serious questions remain regarding the quantities
of Russian gas that would be available for
transfer to Europe, Gazprom's natural gas pricing
policies, and South Stream's impact on EU energy
regulations.
A day before the ceremony in
Anapa, Maria van der Hoeven, executive director of
the International Energy Agency, also raised
questions about the cost-effectiveness of the
project. She told reporters that making a
multi-billion dollar investment into the pipeline
"could be seen as a brave choice", given Europe's
sliding gas consumption. European gas demand has
declined by 11% in 2011 and is expected to
decrease further this year.
In the fall of
2012, Gazprom engaged in intensive rounds of
negotiations in Southeastern Europe to put in
place the pipeline agreements with all
participating states. Gazprom hurried to pre-empt
possible investment decisions on the Nabucco gas
pipeline that would have made South Stream's
future uncertain.
The EU- and US-backed
Nabucco pipeline would pump gas from Central Asia
and the Caucasus to Europe via Turkey and southern
Europe, reducing Europe's reliance on Russian gas.
The original idea has undergone modifications
since Azerbaijan and Turkey agreed on June 2012 to
build the Trans-Anatolian Pipeline (TANAP) from
the Caucasus through Turkey to the Greek border.
The pipeline will then connect with
Nabucco-West (a shorter version of the original
project) through Bulgaria, Romania, and Hungary to
Austria. Senator Lugar's report is focused on this
version of Nabucco, which would effectively
diversify gas sources in Europe. The South Stream
project does not diversify sources - they remain
entirely Russian - it only changes routes by
bypassing Ukraine and as a result enables the
Kremlin to place greater political pressure on
Kiev.
The South Stream pipeline was
marketed in Eastern Europe as a profitable venture
because the expected transfer fees for the planned
63 billion cubic meters (bcm) of gas per year will
be significant. However, Gazprom may not have such
quantities of gas available since Russia's Eastern
Siberia fields are not yet developed and the
Western Siberian ones are becoming depleted.
Gazprom currently delivers 55 bcm of gas
per year to Germany and Finland via the Nord
Stream pipeline under the Baltic Sea. The South
Stream pipeline may end up with much smaller
quantities of gas, given that Southeastern Europe
has much smaller demand. If the pipeline carries
only 15 bcm of gas per year, probably diverted
from Ukraine's transit network, the countries
participating in the project will find it
difficult to pay the loans they plan to obtain for
the construction of the pipeline.
Gazprom
has no new contracts for South Stream, and only
Serbia has expressed desire to increase supplies
to 5 bcm per year from the current 1.39 bcm.
However, Gazprom's biggest problem will be
complying with EU energy regulations. One of them
requires South Stream to provide full access to
third-party gas in all distribution and
transmission infrastructure in a competitive
manner. Another, even more problematic regulation
that will affect South Stream is the EU
requirement for separation between transmission
and production activities, or the "unbundling" of
supply and trade. Based on this regulation, in
2011, the EU overturned Gazprom's acquisition of a
50% stake in the Central European Gas Hub in
Baumgarten, Austria.
Russia wants to
create a precedent with South Stream that will be
used for its Nord Stream pipeline as well. Gazprom
will try to avoid implementing the Third Energy
Package by bending the regulations or interpreting
them in a flexible manner.
In December
2011, Russia's Ambassador to the EU Vladimir
Chizhov told reporters: "South Stream does not
fall under the Third Energy Package because its
owner will not be Gazprom but an international
consortium. That is, it will be under an
independent operator. The same applies to Nord
Stream, because its operator - Nord Stream AG - is
a consortium registered in the Canton of Zug in
Switzerland." South Stream's core shareholders
include Gazprom with 50%, Italy's Eni with 20%,
and Germany's Wintershall Holding and France's EDF
with 15% each.
In September 2012, the
Russian press reported that Gazprom would reform
its European assets to meet EU requirements and
avoid anti-trust claims by the European
Commission. The planned change implies the
creation of two subsidiaries of Gazprom to sell
gas to European customers instead of the existing
single entity - Gazprom Storages & Transport
and Trading GMT Holding.
The first of the
holdings will reportedly embrace Gazprom Germania,
gas storage and transport networks, and the second
will sell gas. The plan will probably not work,
because Gazprom will remain the owner of all
assets and this will not satisfy the requirements
of the EU's third energy package.
The
risks and uncertainties of South Stream are much
higher than the benefits, but the Eastern European
countries seem to be determined to invest in the
project nonetheless. This will leave them without
funds for Nabucco. The EU, however, still has a
chance to press its energy and environmental
regulations and give a boost to Nabucco. US
leadership in this task is critical, which makes
the initiative of Senator Lugar even more
important.
Margarita Assenova is
a professional journalist and political analyst
with over 25 years of experience in print and
broadcast media, including Radio Free Europe/
Radio Liberty. In 1997 she was awarded the John
Knight Professional Journalism Fellowship at
Stanford University for her reporting on
nationalism in the Balkans. She currently serves
as the Course Chair (Contractor) for Southeast
Central Europe Advanced Area Studies at the
Foreign Service Institute of the US Department of
State.
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