The hidden gas wars - series
Part 1 - 2018 So what was ALL of the fuss about?
The Russian EU gas pipeline saga STILL continues with more some unforeseen twists & turns along the way, since I last wrote about the Gas wars.
The Turkish Stream is being built, with Bulgaria out in the cold. This is all the remarkable feat for Russia, given Turkey's seriously antagonistic & contrived position in Syria.
No issues or major headaches for Germany with Nord Stream 2, despite some vocal political protests (including Poland and the Baltic States predictably), from some certain corners of the EU. The political skullduggery is still there & more lashings of the utterly underhand attitudes of certain EU members. The US administration isn't too fond of the Nord Stream2 project, because in the words of the U.S. Secretary of State Rex Tillerson said it was “not a helpful piece of infrastructure to support stability in Europe.” (SURE). Nothing to do with the fact that the US covets a big slice of the Europe LNG, through its own shale gas derived LNG exports. Sure thing to swap dependency on one big gas provider, at a reasonable cost, with another, that is going to be potentially eye- wateringly expensive due to the LNG import costs, for the average EU citizen.
"Moreover, even states that have built LNG import facilities, such as Lithuania, continue to seek Russian imports due to the significant price gap between LNG and Russian pipeline gas." Foreign Policy 6 Feb 18
Nord Stream 1 and 2 gas pipelines
Recently Poland wants to say goodbye to a large Russian gas import, for the sake of energy 'diversification'. But this will come at a price to the ordinary and industrial users of gas, since it will affect pricing. It built a liquefied natural gas (LNG) terminal in 2016, to receive imports, (shipped LNG is pricier than pipelines), from other sources, such as LNG from the US. Additionally, Poland is developing the 'Baltic Pipe' with Norway, with a completion date of autumn 2022, with a potential 43% share of expected 2022 gas supplies. Poland hopes for a 37% LNG import by 2022.
Ukraine's Russian gas posturing is still in far in orbit, (not unlike the red Tesla roadster), as it is endlessly getting in a huge flap over the "aggressor country", but still wants a nice discount for Russian gas supplies and transit to the EU. Nearly half of Russia’s gas supplies into Europe transits Ukraine, despite the ongoing gas contract disputes between Kiev and Moscow.
Two-faced approach to energy security is apparent, that sits at odds with the trending "Blame Russia" narratives that bounces around the US and Europe these days. Although the top prize for hypocrisy goes to Ukraine, the US joins this category and gets second position for their Russian energy posturing in the last of couple of years.
European shipping companies invovled with Russian LNG exports caused a media stir when molecules of Russian LNG from Yamal ended up in Boston, US back at the end of January. Yet it arrived from the UK, onboard a French-owned LNG tanker, 'Gaselys' and had been previously brought by a Malaysian energy broker. That still triggered a lot of people and MSM States-side though. The shipment was deemed to be an one-off spot LNG contract, due to the winter cold snap that the US east coast experienced. It does shows the inherent flaws in the US energy sector, though, especially in the much vaunted 'let's export to the world' marketing of US LNG. It begs the question of how realistic is the US in its ambitions for energy dominance being projected onto other countries, especially in Eastern Europe? The US imported LNG in New England, due to a domestic lack of pipeline integration, at the same as the US’s exports are increasing from Louisiana. The Sabine Pass liquefaction terminal in Louisiana, is currently the only facility to ship U.S. shale gas overseas. One recent example is the first shipment of liquefied natural gas intended for India. (Shale gas with all its extraction controversies - damage to the environment, water aquifers and seismicity...) While at the same time relying on importing Trinidad and Tobago LNG amongst others to cover its energy needs.
The increased interest and demand for new gas supplies from the frozen north of Russia makes it all of the more significant in the Russian-EU (pseudo US) gas wars.
Yamal LNG
In the medium and long-term, it is China that recoups the most benefits in having contracts for Russian LNG, especially with the latest 'Power of Siberia 2' pipeline project.
Links
Polish PM take on gas supplies for Europe: https://euobserver.com/tickers/141000
Nothing changes - US CIA 80's paper on Soviet gas pipelines: https://www.cia.gov/library/readingroom/docs/19820921.pdf
Part 2 - The Winner takes (nearly) all
Back in 2015, to be precise 19 June 2015, I wrote about the "Gas wars - The winner takes (nearly) all", on the back of a series of gas pipeline sagas between Russia and the EU. Here's the view back in 2015:
The Russian EU gas pipeline saga continues with some amazing twists & turns along the way. Add in political skullduggery & you’ll get just a small glimpse in the utterly underhand attitudes of certain EU members. The latest Gazprom announcement made this week will certainly be a tear-jerker for some very dumb politicians sitting in Sofia.
“Sputnik reports: Russian energy giant Gazprom announced Thursday that it was intending to construct two a double pipeline from Russia to Germany through the Baltic Sea with E.ON, Shell and OMV.
“The memorandum demonstrates the intention of the sides to implement the project of construction of two strings of the pipeline from the coast of Russia through the Baltic Sea to the coast of Germany. The capacity of the new pipeline will be 55 billion cubic meters annually,” Gazprom said in a statement.”
If there are some to down to earth souls in Sofia, surely there should be some gnashing of teeth in anguish tonight. Bulgaria would have been the first beneficiary of the Black Sea undersea South Stream pipeline, with a planned capacity is 63 billion cubic metres per year (bcm/y). Bulgaria would have had gained with all of the transit fees perks attached to the project. The South Stream project got scuttled by Russia, as a result of numerous political sabotage attempts by the EU Commission & some EU member states as well as behind the scenes US administration agitation. This seriously damaged the project politically beyond repair. So President Putin had no other choice but to pull the plug on the project. Putin said: “We didn’t give up South Stream, we were not allowed to implement it.” One of these EU member states that threw away this financial opportunity was Bulgaria. Now Turkey has taken up this baton, through the planned operation of a Turkish Stream, with the European hub on the Turkish-Greek border. Putin stated that if Europe “want our gas in 2019, they should start making appropriate arrangements to collect it from the Turkish stream hub right about now".
Turning back to the next planned phase of Nord Stream rev 2 & rev 3, once more the sole EU beneficiary& end user of this is Germany. We live in interesting times indeed, since the existing Nord Stream only operates just under half capacity. This is due to the EU 3rd energy package, which states that 50% of the pipeline capacity has to be filled by a competitor. The EU 3rd energy package is considered to an anti-Russian trade barrier, as currently there is no other Russian competitor on the market. Essentially, the two extra pipelines direct to Germany will most likely to be only used at 50% capacity as well. That seems to be some fine & dandy footwork on the part of by both Gazprom & Germany to avoid breaching the 3rd energy package rules. Crazy as it seems, but this is a possible scenario. Nord Stream is wholly Russian owned infrastructure, built & operated by Gazprom. Germany as the end-user of Nord Stream will not be allowed by Gazprom to re-sell the gas, if the Nord Stream Terms & Conditions are the same.
With Nord Stream increasing in capacity, with a potential total of 27.5 bcm, Germany takes it all & the other EU member states can squeal as much as they want, since many of them were denied the opportunity to take part in the South Stream, once Bulgaria got cold feet about the project, due to intransigence from the EU Commission. Central European countries are looking into piggy-backing gas supplies from various sources, including the planned Turkish Stream. The latest project being mooted is called Eastring. Another gas pipeline project touted is the "Tesla" project, the idea came about from a meeting in April 2015 of the foreign ministers of Greece, Macedonia, Serbia and Hungary. The stopping of South Stream not only seriously impacted the hopes of EU members in South-East Europe but also Bosnia, Macedonia & Serbia.
Previous blog entry on this very subject was in November 2014:
"The light at the end of a pipeline?" (The EU, Russian gas wars - (with a little help from the US)
who are you? Let's go, Goodbye!
The EU is determined in reducing its energy dependence on Russia gas, regardless of the political costs involved. The EU fears it is open to blackmail by Russia, rather than being seen as a source of revenue. This fear has intensified as a result of the tensions in Ukraine, despite the 40 years of trade between first the Soviet Union & now Russia. Russian gas supplies to Europe could be reduced by using other alternative energy supplies, but at a high cost. Equally, EU members states are tangled up with their EU environmental rules. For instance, Germany itself is moving away from using coal, thereby potentially needing more gas supplies, as well as renewable energy sources to make any shortfall. The key potential winner & loser in this energy gas security tug of war is Russia. There are drawsbacks to all of the EU proposals for reducing dependence on Russian gas.
#Russian #gas supplies to #Europe http://t.co/m08p3tQ22r pic.twitter.com/VTvPaIR4yp
- EBB (@EBB_Biodiesel) November 7, 2014
30% of EU gas came from Russia in 2014, not much has changed since then.
In autumn 2013, the nerve centre of the EU, the European Commission, started an investigation into the South Stream pipeline project, as it was seen to violate the provisions of the European Union’s Third Energy Package. This EU rule is designed to stop monopolies, as well as promote competition & diversification between energy suppliers and transit routes. This would require a separation in ownership as well.
Original projected route for South Stream, no longer the case.
South Stream project
The EU insistence that any new or amended contracts with Gazprom, need to be subject to the provisions of the Third Energy Package, is proving to be a big headache for the Russian supplier. This opinion seems to be at odds with the comments from Donald Tusk, President of the European Council, who stated that "Europe should confront Russia’s monopolistic position with a single European body charged with buying its gas"; effectively one monopoly versus another one, at the expense of each EU member state.
The contested element of the Third Energy Package is that half the capacity of the pipeline is required to be made available to independent suppliers. The snag in all of this the pipeline is mostly financed by Russian money & Gazprom is the sole supplier & owner. Thus it would need a special EU exemption to ship gas to Europe. Interestingly similar lively debates took place over the construction of the South Stream's twin, the Nord Stream pipeline, in the Baltic.
In March 2014,The European Commission decided not to exclude part of Nord Stream's pipeline, Opal, ( the German section), from the Third Energy Package. The result is that a 50% pipeline capacity has been set to allow other suppliers to use it. The problem is no-one else has taken up the spare capacity on the pipeline. Additionally, due to the ongoing geopolitical tensions between the EU & Russia over Ukraine, the European Commission has pushed back the application for an exemption, until January 2015.
Of course, none of this would be the geopolitical hot potato that is it is now, if it wasn't for Ukraine, since it is seen to be a high risk for transit of Russian gas, principally due to the "gas wars" of 2006 & 2009, which left the EU in a highly vulnerable political & energy crisis.
The tensions in Ukraine is driving the EU to take more action against Russian gas supplies. There is also increasing perception in Brussels & Washington that Russian gas is Putin's choke-hold on the EU.
The construction of South Stream would negate the Ukrainian transit risk, but so would the political leverage of Ukraine as a transit country. Clearly both the US & the EU are aware of this and hence the EU 'spanners' are being put into the works of the South Stream project, quite probably at the behest of the US Administration. A glimpse into the US administration's mindset was given by the Hungarian Prime Minister, Vitkor Orban, this week, when he said that the US was putting pressure on the Hungarian government over the South Stream pipeline. More direct are the words of Matthew Bryza, the former US ambassador to Azerbaijan, who suggested that:" ‘Europe can do without Russian gas; it is Moscow that cannot afford to carry through its threat.’ President Putin recently remarked that the South Stream delays were of a political character.
Countries involved with the South Stream project are quite unhappy with the EU's decision to suspend construction & have expressed their “commitment” to it. The Italians, Austrians, Hungarians, Bulgarians & Serbians remain keen supporters of the project. Hungary & Serbia are now at odds with the EU due to their positions on the implementation of South Stream. Even the Italian government is concerned, as it wants to reduce its reliance on gas from North Africa, (Libya!). Italy's state secretary for European affairs, Sandro Gozi stated in an interview in July that:“We think South Stream should go ahead, as it would improve the diversification of gas routes to Europe.” He also added that was a need to first alternative solutions in"how to get fuels," before halting the South Stream project. Ironically so was Federica Mogherini before she became EU foreign policy chief.
Flip flop, change of hats, change of tune
Ironically, the EU had previously pushed for the creation of the Nabucco pipeline, connecting gas from the Caspian Sea to Europe. However, it did not receive sufficient political support for it to develop. The EU was not deterred by this setback as it is currently supporting another project - the TAP pipeline, again from the Caspian Sea via Turkey to Europe. This would enable the EU to diversify its gas supplies, away from Russian gas.
The knee-jerk reaction by the EU to favor the Nabucco or the TAP pipelines may seem to have some substance. Nevertheless, it is equally short-sighted, since reducing Russian gas supplies would benefit greatly Turkey, as the alternative gas transit state to Europe. This could also have unforeseen consequences for the EU.
The narrow focus on Gazprom as a monopoly shows that the EU is fixated on Russia, since this is not the only monopoly that dominates the EU sphere, take for instance Amazon or Microsoft, who have an unequal slice of the pie. However they come under less scrutiny than Gazprom these days. Is this a case of blinkered thinking on the part of the EU leadership?
The final word
Vaclav Baruska, the Czech Republic's energy security envoy said, "We simply expect either no transit or unpredictable transit this winter." Prague evidently knows about the past habits of Ukrainian authorities, the level of corruption which could still jeopardise gas transit through Ukraine.
Background Info
GAS INFRASTRUCTURE -Main European routes are:
Nord Stream (Baltic Sea) with a capacity of 55 bcm per year,
Yamal-Europe (Belarus) - 33 bcm per year,
Soyuz (Ukraine) - 80 bcm per year
and Blue Stream (Turkey) - 16 bcm per year,
http://www.energypost.eu/everything-always-wanted-know-russian-gas-supplies-europe/
Notes:
*The European Union’s Third Energy Package is a legislative package for an internal gas and electricity market in the European Union. Its purpose is to further open up gas and electricity markets in the European Union.
2013
*South Stream: The project started in 2002, with first deliveries due in 2016, and it was expected to be fully operational in 2018:
a capacity of 63 billion cubic metres (bcm) a year;
2400 km in length;
15% of European gas supply market
*Matthew Bryza, director of the International Centre for Defence Studies:
"Russia would also be jeopardising its long-term position as Europe's principal gas supplier, by allowing the US, Australia and Mozambique to gain a foothold in this lucrative market. Moreover, Russia cannot cut off natural gas flows without doing permanent damage to its own natural gas reservoirs. In short, Europe can do without Russian gas; it is Moscow that cannot afford to carry through its threat. European leaders should not argue themselves out of tougher actions to stop Mr Putin's military adventurism in Europe's east."
*The most likely sources of gas via the TAP would be Azerbaijan,Turkmenistan in the Caspian region, Iran, and the Kurdish area of Iraq.
*Turkey is in fact one of the largest recipients of Russian gas, with an estimated 24.57 billion cubic metres (bcm) in 2013, which only roughly 10% less than the combined total Russian gas supplied for Austria, Hungary, Poland, Czech Rep & Slovakia.
Sources:
http://www.energypost.eu/mr-tusk-planet-live-century/
http://voiceofrussia.com/news/2014_07_01/Budapest-not-to-refuse-from-South-Stream-project-prime-minister-8032/
Oxford Institute for Energy Studies (OIES),
http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdf
http://www.eurotopics.net/en/home/presseschau/archiv/archiv_dossier/DOSSIER149684-Sanctions-against-Russia-divide-the-EU
http://russia-insider.com/en/business_society/2014/11/12/09-03-49am/google_amazon_and_apple_less_transparent_gazprom