Europe: No need to worry Russian political analyst Mikhail Leontyev recently said when commenting on Russia’s advance to the Balkans: “Gazprom’s attempts to acquire European gas transportation assets on market conditions provoked hysterics in Europe.” “It is assumed in the West that Russia is strangling its partners with its energy resources,” he said. “But few people know that, unlike in the case of oil, end consumers now pay for gas several times more than what it costs to buy it from the supplier (Gazprom). The European grid companies monopolise the market, getting additional revenues from the sale of Russian gas.” It appears that Russian energy companies will no longer agree to let go of their share of profits, although they are not willing to lose the reliable European clients either. The North European Gas Pipeline (Nord Stream) and South Stream are part of that strategy. However, the southern – Balkan – vector can be used to make the other parts of Europe more pliant in terms of Nord Stream and access to distribution grids.
Although Russia does not have a ramified energy network in Europe, it supplied 73bn cubic metres of gas and 59mn metric tons of oil to Southern Europe last year. Energy giant Gazprom and Russia’s largest private oil company LUKoil invested more than $1bn there.
Electricity monopoly RAO UES and the Federal Agency for Nuclear Power (Rosatom) are also eyeing the Balkans, pondering the construction of a nuclear power plant in Bulgaria to replace the Kozloduy plant, which has almost exhausted its capacity.
Besides, “Russia would like to continue discussing gas sales and the construction of underground gas depots in some Balkan countries,” President Vladimir Putin said at the Balkans summit in Zagreb. “Other interesting possibilities include gas supplies to Macedonia and the expansion of the gas pipeline network towards Albania, southern Serbia and Kosovo.”
President’s word This may mean that Gazprom’s intention, although it was not broadly advertised, to turn Turkey from an unpredictable rival into a reliable partner in the sphere of energy export is a logical part of that strategy.
Additional surprises, such as Greece’s desire to join South Stream expressed by Prime Minister Costas Karamanlis at a meeting with Putin, can only encourage Turkey to work more closely with Russia. Analysts noticed that the Russian president has recently become much more active on energy issues. It is true that Putin’s word has gained importance in handling energy problems in the past year or two.
Experts recall that Putin was a most active advocate of Nord Stream, which embarrassed his squeamish European colleagues. He also secured Gazprom’s advance to the consumer markets of Italy and France, and agreed with Italy on the construction of South Stream.
The throughput capacity of South Stream will be determined in the feasibility study.
It will receive gas from the Russian gas transportation system, which is pumping gas bought in Central Asia, including Kazakhstan.
The president’s attendance of the recent energy summit in Croatia was a logical part of that strategy. “Russia as a global energy leader is ready to take over the solution of the Balkans’ energy problems,” Putin said in Zagreb.
He said that Russia wanted little from the project, referring to “transparency and fair conditions for business relations.” It was on Russia’s prompting that the final document of the Zagreb summit sealed the framework rights to the transit of energy resources, to be considered a special commodity to which all countries should have free and uninterrupted access.
Turkish shore… Putin’s energy crusade continued in Istanbul, at the summit of the Organisation of the Black Sea Economic Cooperation (BSEC), which confirmed nearly all of the Russian-Turkish energy agreements, including the one on the second leg of the Blue Stream gas pipeline.
However, it was not the only reason why the Russian president went to Turkey.
For years Russia had to bypass Bosporus and Dardanelles, where Turkey stubbornly enforced “separate” limitations on tanker navigation since the mid-1990s. Russia’s losses from these infringements exceeded $1.2bn since 1995, which can be regarded as a weighty reason for building bypass routes.
Russia’s economic interests are not limited to solving the problems of the Turkish straits. They now directly concern Turkey, which is an oil-and-gas junction between Europe and Asia, and many of these pipeline projects were initiated jointly with Russia.
Turkey is taking part in several energy projects in the region, such as the Baku-Tbilisi-Ceyhan, Samsun-Ceyhan and Kirkuk-Ceyhan oil pipelines, the Blue Stream, South Caucasian, trans- Caspian and Turkish-Greek-Italian gas pipelines, as well as the Nabucco pipeline and the oil-and-gas pipeline from Turkey to Israel.
It makes sense that Turkey was alarmed by the memorandum on South Stream, which Gazprom signed with Italy’s Eni shortly before the BSEC summit, especially because the two companies firmly agreed to hold equal shares (50:50) of the underwater part of the pipeline, and Bulgaria and Greece almost immediately announced their intention to join that project.
South Stream does not stipulate the use of Turkey’s transit capability, which puts a shadow on its plans to become the main transit hub for energy supplies from the Caspian and Central Asian countries to Europe.
The oil pipeline from Burgas in Bulgaria to Alexandroupolis in Greece will strip Turkey of considerable dividends, while South Stream can put the lid on the Nabucco project, according to some experts.
Turkey has resigned itself to the Burgas- Alexanderoupolis pipeline, although it may still try to postpone its commissioning.
But Russia’s decision to build South Stream bypassing Turkey may affect bilateral relations. Russia cannot offer Turkey any compensation, such as indirect assistance to involving Turkey in the development of Turkmenistan’s oil and gas offshore projects.
This is why some radical analysts are speaking about possible aggravation of Russian-Turkish rivalry in the Black Sea region. The global gas demand is growing rapidly, and pipelines are being built at a comparable speed. However, the existing pipelines cannot satisfy the growing demand of gas consumers any longer. Therefore, the diversification of reliable energy sources and transportation routes will remain on the agenda in the medium and longer terms.
The Nabucco gas and the Samsun-Ceyhan oil projects, in which Russia is not involved, as well as the Caspian project and South Stream, which are proceeding with Russia’s assistance, will be most likely implemented. This is probably why the Russian president spoke in Istanbul about the need to “carefully consider the economic expediency of and the energy resources for each project, so as to prevent possible disappointment.” The idea of a ring highway around the Black Sea, voiced at the BSEC summit, can be viewed as an additional element of energy and transit projects. Russia has the best experience of such construction, especially in the Moscow Region.
…and Greek salad Positive results of the Zagreb summit allowed Russia to start implementing an ambitious project, which was called South Stream. It stipulates building a new ramified and diversified gas pipeline system, from Russia to Bulgaria and on to the European Union countries.
Turkey was most likely the only country to be surprised when Greece expressed its desire to join the project. Despite mutual contradictions, Ankara still views Athens as an energy satellite.
The position of Greece, although it has improved relations with Russia, cannot be described as unequivocal. With shares in the Burgas-Alexandroupolis pipeline, South Stream and the Blue Stream offshoot, it can easily become energy self-sufficient, an economic goal it has been trying to attain for the past 30 years. Launching these projects in several countries simultaneously will allow Russia, Bulgaria and Greece to bypass Turkey’s Black Sea straits. Experts evaluate the transit revenues of Bulgaria and Greece from the Burgas- Alexandroupolis pipeline at $100mn annually, at the least.
And yet, Greece did not act immediately, hoping that offshoots would be built from the Baku-Ceyhan oil pipeline from Erzurum to the Balkans via Turkey, which could suit Athens. But when Russia and Turkey seemed to have agreed to promote cooperation in laying pipelines to the Middle East (they could be used in the reverse mode, thus neutralising the seasonal factor which increases transit costs), Greece started urging nearly all Balkan energy projects involving Russia.
The situation has been complicated by the fact that Greece is a NATO member, and so should not play against the US and the EU as regards oil and gas transit from the former Soviet republics. On the other hand, since the Burgas-Alexandroupolis pipeline will be built to modern technical standards (allowing reverse pipeline operation), Greece and Bulgaria may hope to benefit from the transit of the Middle Eastern and North African oil to oil-hungry countries of the former USSR.
Energy crossroads Unlike Europe, which is openly exploiting the political aspects of the situation in the Balkans, including Kosovo, Russia is mainly addressing the region’s economic ailments. In principle, Russia’s tough position on Kosovo sovereignty can be explained, in part, by the fact that the region stands at the energy crossroads of Southern Europe.
Large-capacity oil and gas pipelines and electricity lines will reach the Adriatic sooner or later, turning on Kosovo’s potential capability that is lying dormant now. This means that stability in Kosovo and around it is a factor of energy stability and security in the whole of the eastern Mediterranean. However, the Kosovo problem, if viewed from the energy angle, is a local hitch that can be smoothed over with the good will of all parties concerned.
Putin said: “Our position rests not on religious, ethnic or historical considerations, but on modern principles of international law and a desire to look into the future and to promote stable relations in the name of spurring the development of all regional countries.” With the exception of diehard separatists, all parties concerned, notably the Balkan leaders, have the good will for that, as exemplified by their turn towards Russia, above all in energy issues. Initially, the Balkan countries – Europe’s soft underbelly, as Winston Churchill described it – relied on Turkey to resolve its chronic energy problems.
Turkey, which has been balancing between Europe and Asia for years, was ready to become the Eurasian energy centre (especially when the Russian economy stalled).
Moreover, it smartly used the business interests of major Russian companies to attain its goal.For example, Gazprom took part in the Blue Stream project of global strategic importance. LUKoil, Russia’s largest private oil company, took the upper hand over its rival – Yukos – and also Turkish companies in the fight for a foothold on the Balkans coast. The oil terminal and refinery in Burgas, which LUKoil controls, may become the starting point of the Burgas-Alexandroupolis pipeline.
Ioan-Codrut Seres, Romanian Minister of Economy and Commerce, recently told the German newspaper Berliner Zeitung: “I believe the EU is not paying enough attention to transit projects which could enhance the energy security of the European Union.” Government officials from other Balkan countries have expressed similar opinions, and the EU seems to be forming a comprehensive approach to Europe’s energy security. It has allocated funds for building oil and gas pipelines from the former Soviet republics and North Africa, as well as transit oil and gas terminals in the Balkans, Eastern Europe and the Adriatic region. Russian political analyst Oleg Veremeyev said: “The main issue now is to ensure proper financial conditions for the construction [of pipelines] and oil transit through the pipelines now under construction. The Balkans and Turkey would like to strengthen their energy transit positions, but exporting countries no longer want to risk dependence on one or two transit routes.”
