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Relax and Float South Stream
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There’s a Central Asian energy revolution going on. In the key arena of gas geopolitics, it’s no secret Russia favors the creation of a gas “OPEC” – to the despair of the George W Bush administration. But Alexei Miler, the powerful head of Russia’s Gazprom, was in for a rude shock this Tuesday when the three state gas companies in key Central Asian “stans” – Uzbekneftgaz, Turkmengaz and Kazmunaigaz – told him that starting next year, they will only sell their gas to Gazprom according to European rates. Gazprom, although with deep pockets, could have never expected that Uzbekistan, Turkmenistan and Kazakhstan would all gang up on it this way.

Gazprom used to buy around 4 billion cubic meters of gas from Uzbekistan at US$140 for a thousand cubic meters, and 8 billion cubic meters from both Turkmenistan and Kazakhstan at, respectively, $145 and $160 for a thousand cubic meters. According to the Russian daily Kommersant, by 2009 Turkmen gas will probably be charged from $250 to $270. Gazprom can realistically expect to sell its gas in Europe for around $300 the cubic meter.

The great loser, according to Russian daily Vremia Novostiei, is Ukraine, which basically buys Central Asian gas transported by Gazprom. But Ukraine could brandish the weapon of transit tax of Russian gas; thus “the alignment to an European level may offset the effect of the Central Asian diktat. In that case, it’s Gazprom which will be the victim.”

This new development threatens to turn upside down the success of Russian President Vladimir Putin’ s visit to Kazakhstan and Turkmenistan in May 2007 – when he made sure that prized Turkmen gas would arrive in Europe only through Kazakhstan and Russia. Putin convinced the “stans” just as an “anti-Russian energy summit”, as dubbed by Kommersant, took place in Krakow, uniting Poland, Ukraine, Azerbaijan, Georgia and Kazakhstan itself.

These five countries somewhat agreed to build a new pipeline from Odessa to Gdansk, bypassing Russia, and part of the TransCaspian pipeline. But the agreement was basically rhetorical. Poland wanted it to mean the beginning of an “energy NATO”. It didn’t work. Instead, Putin’s key objective was reached – to reinforce Gazprom’s iron clad position in an “energy dialogue” with the European Union (EU).

And now for a real energy war

What’s taking place between Russia and the EU is more of an energy war than an energy dialogue. The EU and the US pin all their hopes on the 3,300 kilometer-long, $5.8 billion Nabucco pipeline, planned in 2004 and with construction about to start in 2009, already approved by the European Commission. Nabucco would transport Caspian Sea natural gas (potentially even from Iran, barring US opposition) from Erzurum in Turkey to Baumgarten an der March in Austria via Bulgaria, Romania and Hungary.

Nabucco is owned by a consortium including Romania’s Transgaz, Bulgaria’s Bulgargaz, Austria’s OMV, Turkey’s Botas and MOL and Germany’s RWE. France’s Gaz de France may soon join. Nabucco is thus the EU’s channel to not import natural gas only from Russia.

Russia’s answer to Nabucco is the 1,200km, $15 billion South Stream pipeline, carrying Siberian natural gas by way underground of the Black Sea from Russia to Bulgaria. From Bulgaria, one branch would run south through Greece and southern Italy while the other would run north, through Serbia and Hungary towards northern Italy. The memorandum of understanding for South Stream was signed in Rome in June 2007 by Gazprom and Italy’s ENI.

It’s very easy to see who’s winning in the Nabucco vs South Stream war. In early January, Bulgargaz spurned insistent EU siren calls for Nabucco and opted for South Stream – despite the fact that Bulgaria is both a EU and NATO member. Then Serbia also came on board – with Gazprom taking a 51% stake in NIS, the Serbian oil monopoly.

What the three “stans” have done to Gazprom this week softly mirrors what Gazprom has done to Ukraine – no more gas if you don’t pay what we want. This is enough to raise plenty of multinational heartbeats at the European Commission in Brussels – terrified that the EU, which import 40% of its gas from Russia, will become a hostage of Gazprom’s whims.

The same day the three “stans” were handing Gazprom their new tariffs for 2009, energy experts from the 27 EU member countries were meeting in Brussels with Energy Commissioner Andris Piebalgs to debate what to do as Gazprom decided once again to pump less gas to Ukraine – and thus to Europe.

The Iraqization of Nabucco

Nabucco is hardly a solution for Europe, for a number of key reasons. Will the EU be able to buy Iranian gas via Nabucco? Will the “stans” have enough gas to supply both Russia and China? Will they renege on their deals with Gazprom? Or will they keep rising their prices to Gazprom, as they announced this week?

Turkmenistan, for instance, pledged to sell 50 billion cubic meters a year to Gazprom; it also has to provide 30 billion cubic meters for a pipeline to China starting in 2009; and it needs to supply 30 billion cubic meters for Nabucco. Few believe it can export that much.

All these variables have led Duma deputy speaker Valery Yazev to already declare “the death of Nabucco”. Reinhard Mitschek, the head of the Nabucco consortium, flatly disagrees, extolling its “future potential”.

Finally, in late February, Putin signed a bilateral agreement with Hungarian Prime Minister Ferenc Gyurcsany at the Kremlin. Hungary was also on board of South Stream; 10 billion cubic meters of gas a year running through Hungary after running through Bulgaria and Serbia. Now Romania is the only southern European country still pledged to Nabucco.


What this all graphically spells is Caspian – and Siberian – gas basically arriving to the EU via Russia. Bulgaria, deciding to go the Gazprom way, definitely split up the EU amalgamation. Italy also went the Gazprom way. Putin went to the heart of the matter in late February, while he was still president: “Our partners should do a very simple thing: they should take a calculator and see what is more profitable.”

As for US deputy assistant secretary of state Matthew Bryza, he has been crying “Follow your wallet” like a madman; for him, it’s Nabucco that makes commercial sense, cutting the EU’s dependence on Gazprom by up to 25%. He insists this is all in European countries’ “national interests” even though no US energy multinationals are part of the deal.

But what this is in fact is classic George W Bush administration thinking. First of all anything goes to bypass Russia. And of course there is always the unspoken, invisible Iraqi angle.

The Bush administration still hopes that the Iraqi Parliament will approve its key “benchmark” – the new Iraqi oil law, which will in fact denationalize the oil industry. Thus, in this best of possible worlds, Iraqi gas, pumped through Syria, would be able to fill Nabucco, which would not be wholly dependent on the “stans”. And there’s always that neo-con dream of regime change in Iran – enabling Iranian gas to reach Europe but under US terms.

Any speculation about what Russian president-elect Dmitry Medvedev is up to is idle. As Viatcheslav Nikonov, president of the Politika foundation, wrote in the Russian daily Izvestia, “Russia remains a force in itself, preserving sovereignty in all its domains” and developing its economic, political and military power. “We are too big to follow anyone.”

Medvedev, says Nikonov, is all for “free market, democracy, the force of the state, sovereignty and traditions”. He is a conservative. He was personally chosen by Putin. And he is a Gazprom man. So everybody better relax and float South Stream.

(Republished from Asia Times by permission of author or representative)
• Category: Foreign Policy • Tags: Central Asia, Eurasia, Natural Gas 
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