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We don’t need this annual outburst of pipeline politics

The Kremlin wants Western Europe to be dependent on Russian gas, says Neil Barnett, but that doesn’t have to happen if the EU is prepared — for once — to show leadership

4 February 2009

12:00 AM

4 February 2009

12:00 AM

The Kremlin wants Western Europe to be dependent on Russian gas, says Neil Barnett, but that doesn’t have to happen if the EU is prepared — for once — to show leadership

The annual New Year gas dispute between Russia and Ukraine assumed particularly menacing proportions this year, being longer than usual and coming in a bitterly cold, recession-bound winter. With a number of countries in central Europe dependent on Russia for 100 per cent of their gas supplies — and Britain needing new sources as North Sea reserves deplete — it’s worth asking if the fatalistic belief that there is no way out of growing dependence on Moscow is reasonable. The simple answer is ‘no’.

This is particularly important because some voices in Western Europe are suggesting that deepening dependence on Russia is the correct response. Indeed, there is reason to believe that Moscow precipitated the crisis to promote exactly this sentiment, thus boosting the prospects of its two pet pipeline projects: Nordstream will run from Siberia through the Baltic to Germany; South Stream will run across the Black Sea to Italy and Austria. Aside from locking those large customers into greater dependence while damaging the prospects of Nabucco, the planned ‘European’ project to bring gas from the Caspian, the Russian pipelines would marginalise central European transit countries that Russia is increasingly inclined to bully. If Poland or Ukraine incurred Russia’s displeasure, they could then be cut off without disturbing Western Europe.

Radek Sikorsky, the Polish foreign minister, once memorably likened the German-Russian Nordstream project to the Molotov-Ribbentrop pact. Urszula Gacek, a Polish MEP with a strong interest in energy security, says, ‘It’s clear to me that in doing this the Russians intend to undermine the credibility of Ukraine as a transit state, as they have done with Belarus, and make customer countries dash for South Stream at the expense of Nabucco.’

How, then, can Europe meet its growing energy needs without inhaling more deeply from Siberia’s vast gas reservoirs? Perhaps surprisingly, the EU has a practical role to play. First, in order to deny Russia a day-to-day blackmail tool, better gas storage and interconnection is required. This might not sound terribly exciting, but it would mean that European states would maintain substantial reserves as a buffer, and be able to share them across borders.

According to Lajos Alacs of the Hungarian energy company MOL: ‘EU countries are obliged to keep 90 days’ strategic reserves of petroleum products, and with refinery stocks and so on there is considerably more, which also allows sharing of risk with neighbours. Hungary decided to create a comparable gas reserve. When it’s finished, we will have 1.2 billion cubic metres, enough to pump 20 million cubic metres for 45 days [around a quarter of demand on a cold day]. Combined with consumption savings, domestic production and other reserves, this will allow us to meet domestic winter demand for some time.’


‘Eastern Europe currently only has east-west connections,’ Alacs adds, ‘and new supply projects [South Stream, Nordstream and Nabucco] are no different. We need north-south connectors, which again will improve our negotiating position. The question is, who would finance this?’

Connections are crucial: Serbia and Croatia fared well in this crisis thanks to Hungarian and German reserves, while Bulgarians froze in their apartments for lack of connections. MOL is proposing a central European network called the New European Transmission System — but some EU leadership and funding on this issue would undoubtedly be welcome.

These measures will only give a breathing space, however; they do not address the underlying problem. According to Anita Orban, director of the Constellation Energy Institute and author of Power, Energy and the New Russian Imperialism, ‘As well as interconnections and storage, the solution is a combination of Liquefied Natural Gas (LNG), alternative pipelines like Nabucco, nuclear power and energy efficiency.’

This last measure, saving energy and using it more efficiently, should find support from both security hawks and greens. During the recent crisis, central European consumers used less gas, reducing overall demand by up to 10 per cent. British visitors to mitteleuropa are struck by the tropical conditions in apartments in winter: while a British family would keep the house tolerably warm and perhaps wear jumpers indoors, Hungarian and Polish families prefer sauna-like conditions. They have learned in this crisis that this is not strictly necessary. When the West End shopping mall in Budapest dropped its temperature from 26°C to 20°C, there was trepidation among shoppers — which turned out to be unfounded: no one froze to death in Marks & Spencer.

Alternative energy has a role too, albeit a limited one, and again should attract green support. Nuclear power, alas, is unlikely to enthuse the Greens. Nonetheless, the case is compelling. France generates over 85 per cent of its electricity from nuclear and what little Russian gas it consumes comes at a lower price than, for example, Hungary’s — indicating that once a state is no longer dependent, its commercial negotiating position strengthens dramatically.

For most states, nuclear is only a long-term answer, since the lead-in time is a good 20 years. But a number of new EU members have recently been obliged to shut their atomic plants to placate the Greens, and several are now recommissioning them. Urszula Gacek, the Polish MEP, says, ‘Supporting green energy makes sense from the security point of view, but so does nuclear, which creates no carbon emissions but which the Greens reject. This may start to change now. The Polish government always ruled out nuclear power, but in the last few days it has been saying that the time has come to review this. This crisis may be an opportune time to raise the nuclear issue with the electorate.’

Much the same can be said for coal, which exists in vast quantities in the UK and Poland among other countries, but suffers from bad PR.

Non-Russian gas supplies are another credible form of diversification. The principal source here is the planned Nabucco pipeline. But Nabucco never seems to get very far, despite the rhetoric of EU ‘support’. Its projected capacity of 31 billion cubic metres is mostly still uncontracted: Russia has its paws on Turkmenistan’s reserves and leaders; the Americans veto Iranian gas; and northern Iraq remains, to say the least, awkward. Now, to make things worse, the Turks are threatening to deny permission to cross their territory unless they see more progress in EU accession. A firm commitment from Brussels to push ahead with Nabucco, and not to support its Russian rival South Stream, would certainly help the beleaguered project.

Similarly, LNG is a piece of the jigsaw, albeit an expensive one. LNG involves super-chilling natural gas to 1/600th of its volume, transporting it in special tankers, then re-gasifying it at the destination port. LNG terminals are planned for Croatia and Poland. With interconnectors, these would give valuable escape routes in a future crisis. Moreover, the mere availability of such options would deter Russian misbehaviour and bolster European negotiating power.

The trouble with a number of these measures — particularly Nabucco, LNG and storage — is that their commercial viability is debatable. Yet they are urgently needed to ensure the energy security and stability of many European states.

Lajos Alacs of MOL has an original and simple idea: ‘From 2012 every molecule of CO2 emitted will have to be purchased at auction. This is particularly important for central Europe, where 40 per cent of generation capacity will be phased out in the next two decades, and where most of the repla
cement capacity will be gas-fired. The EU should use this auction revenue to build these connectors and the Nabucco pipeline.’

Lastly, it is worth considering whether Russia really has the ability to satisfy European demand. Yes, Siberia contains mind-bogglingly large gas reserves, but lifting the gas is tricky thanks to decades of under-investment, and new drilling projects will take years to come online. Indeed, much of the ‘Russian’ gas sent to Europe actually comes from Turkmenistan, a bizarre, despotic Russian client-state in central Asia. With domestic consent for Putin’s rule waning during an excruciatingly cold winter — witness last week’s violent demonstrations in Moscow and Vladivostock — does the Kremlin fear the political consequences of domestic supply outages? Gazprom is so opaque that it is impossible to know, but if that were the case, a few weeks’ holiday from supplying part of Europe would be a useful way to replenish Russian stores. Might Gazprom be a Potemkin village?

Whatever Gazprom’s real ability to deliver, it is now clear to everyone except the Germans that allowing Moscow such a degree of leverage is simply not sensible: it plays into Moscow’s hands by bringing closer the old Soviet vision of western Europe as a vassal of Russia — weak, dependent and alienated from the US. The EU has historically meddled in small issues while shirking big ones, particularly security. The energy question is a golden opportunity for Brussels to provide the leadership, vision and funding to dilute Russia’s growing leverage. Whether or not it rises to that challenge will be one of the most important geo-political questions of the coming decade.


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