The Politics of Pipelines

It’s winter in Europe, time for snow, St. Nicholas, and the annual Russia-Ukraine dispute over natural gas supplies. On Wednesday, Russian President Dmitry Medvedev warned his counterparts in Ukraine not to try to modify a 10-year gas supply contract between the two countries. It’s a warning not to take lightly—last January, Russia turned off the taps to the Ukrainian pipeline network over what they said was a billion dollar debt owed to them by Kiev and claimed the Ukrainians were siphoning off gas bound for countries further west in Europe. (For their part, Kiev blamed the missing gas on their leaky, outdated pipeline network rather than theft).

Last January’s shutdown had drastic effects. Europe receives about 20 percent of their natural gas supplies from the Russian pipeline network. Countries in the former Soviet-controlled East though get half, or in some cases almost all, of their supplies via Russia. The Russia-Ukraine gas feud shut factories, chilled cities, and provoked a crisis across much of Europe.

Russia has the second-largest known reserves of natural gas in the world; Turkmenistan is thought to have the third-largest reserves, and other Central Asian states have significant stocks of their own. Europe would like to tap into these gas fields with pipelines that avoid Russian territory. Moscow, meanwhile, is eager to lock these Central Asian supplies into new pipeline networks that they would build and operate, knowing that control over a big chunk of Europe’s energy supplies provides a huge amount of political leverage.

Pipelines have thus become a big political issue for Europe. And in the race to build new pipelines, lately Russia seems to be edging into the lead.

Russia has two key projects in the works. The first is Nord Stream, a pipeline that will run under the Baltic Sea and deliver Russian gas directly to their biggest business partner in Europe, Germany. Nord Stream has Warsaw rather upset, however, as a more direct overland route would carry the Russian gas through pipelines across Poland, making them a player in the Euro energy picture. Of course, with the experience of a recalcitrant Ukraine fresh in its mind and testy relations with the government in Poland, this is exactly what the Kremlin is trying to avoid by snaking Nord Stream across the Baltic seabed.

Nord Stream looked like it had an uncertain future until a few months ago, when Russian cajoling finally got Sweden, Denmark, and Finland (who share rights to the Baltic Sea) to sign off on the project. Construction is now expected to start next year and the United Kingdom has already signed a contract to take delivery of Nord Stream gas in 2012.

Meanwhile, to the south is the creatively-named “South Stream” project that will use a similar undersea route (this time across the Black Sea) to bypass Ukraine and bring Russian and Central Asian gas directly to Bulgaria, where it will then tie into a network of pipelines across Eastern and Central Europe. In addition to their own gas, Russia would buy gas from a collection of Central Asian states (including, in theory, Iran) to ship through South Stream.

But South Stream faces competition from a European-backed, United States-blessed, pipeline project, whose creators had more of a flair for the dramatic in naming it. The pipeline, Nabucco, takes its name from an opera about a Babylonian king who freed his slaves. Does anyone else see a hidden meaning there? Nabucco would tap into the same Central Asian reserves with a route that avoids Russia entirely by running largely through Turkey and eventually tying into the European pipeline network. European (and, quietly, some American) politicians like the thought of Nabucco helping to wean Europe off of Russian gas, with the hopes that it will diminish Moscow’s political weight in Europe.

But while there are vast quantities of natural gas available in Central Asia, experts doubt that there is enough available to make both South Stream and Nabucco commercially viable. So, in a sense, there’s a race on to see which pipeline can be built first. And it appears that South Stream is edging ahead. Russia’s state-run Gazprom already has signed a joint venture agreement with Italy’s energy giant Eni (with the blessing of Prime Minister Silvio Berlusconi), and last week they welcomed France’s energy conglomerate EDF to the party. Under terms of the new agreement, the French company will take a 10 percent stake in the project.

With two of Europe’s biggest economies on board, South Stream now has some serious financial and political backing. Nabucco’s not through yet, however—Turkmenistan has thrown their weight (and gas reserves) behind the project, fearing that a Russian monopoly on delivery to the European market would adversely dictate the prices paid for Turkmen gas. Bulgaria has said it is interested in both projects, though the speculation is that Russia will eventually pressure its longtime ally to drop support for Nabucco and side with South Stream alone.

But are Europe’s Nabucco backers overlooking something? They see Nabucco as a way to break Russia’s control of their energy market—but Nabucco could simply be trading one master for another, as it relies on Turkey as a transit route. It’s worth mentioning that Turkish-European relations have been cooling, in large part because of a decade of feet-dragging in Brussels and European capitals over Ankara’s proposed membership in the EU. With a Turkey-skeptic, Herman von Rompuy, recently installed as the first president of the European Union, it’s doubtful a membership offer is coming anytime soon.

What then is to keep Turkey from emulating Russia’s example—threatening to turn off the taps to force the EU to do what they want? Anything’s possible when pipelines become politics.

  

This article is simultaneously published with our partner site, World Policy Journal

.

Central Asia, Development, Dmitry Medvedev, Europe, Natural Gas, Politics, Russia, Ukraine