Brown warns of Russian "energy stranglehold" - September, 2008

There currently is an unprecedented crisis in the Western world. The situation for Europe is more critical, more serious than one may imagine. The alarming words of some Western leaders are not just empty rhetoric, nor are they simple scare tactics. The Russian Federation does control the very lifeline of the Western world  for it controls the crucial energy needs of Europe. Moscow currently provides about 1/3 of Europe's oil and approximately 1/2 of its natural gas. And now, the situation for Europe is about to get worst because Russia's actions in the Caucasus have effectively shutdown the only source of Central Asian energy not in Russian control: the Baku-Tbilisi-Ceyhan oil pipeline; Baku-Tbilisi-Erzerum gas pipeline; Baku-Supsa oil pipeline; and the much heralded Nabucco project, which envisioned transporting Central Asian energy to Europe via Turkey free of Russian control.

Arevordi

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Brown warns of Russian "energy stranglehold"

September, 2008

Prime Minister Gordon Brown warned that Russia must not be allowed to subject Europe to an "energy stranglehold" and said NATO should review relations with Moscow in the light of its actions in Georgia. In an article in Sunday's Observer newspaper, Brown said he had spoken to Russian President Dmitry Medvedev and told him to expect a determined response when European leaders meet to discuss the Georgia crisis on Monday. The EU meeting in Brussels will debate the bloc's response to Russia's military intervention and its decision to recognise South Ossetia and Georgia's other breakaway region, Abkhazia, as independent states. The Russian incursion has raised fears in the West that an important oil pipeline from the Caspian Sea to the Turkish Mediterranean coast via Georgia could come under Russian control. Brown said he would press European leaders to increase funding to allow EU nations to source energy from the Caspian, reducing dependency on Russia. "No nation can be allowed to exert an energy stranglehold over Europe," the Observer quoted Brown as saying in a front-page story. In his article, Brown said: "Without urgent action, we risk sleepwalking into an energy dependence on less stable or reliable partners." Russia must play by the rules if it wants to enjoy the benefits of bodies such as the Group of Eight, the Organisation for Economic Cooperation and Development and the World Trade Organisation, Brown said. "And, in the light of Russian actions, the EU should review -- root and branch -- our relationship with Russia," he said. It may be necessary to exclude Russia when the other G8 nations meet, and NATO's relationship with Moscow must be re-evaluated, Brown said, pledging intensified Western support for Georgia and "others who may face Russian aggression".

Source: http://uk.reuters.com/article/wtMost...U6460620080830

Putin reminds EU of Russia's Pacific oil pipeline

Prime Minister Vladimir Putin said on Sunday that Russia's first oil pipeline to Asia must be completed without delay, underlining Russia's energy clout just hours before European Union leaders meet to discuss Georgia. Russian state-owned news agency RIA said Putin had signed a government order "on speeding the building of phases of the Eastern Siberia - Pacific Ocean (pipeline) and not allowing delays," while on a visit to the Far East. He was speaking in Kozmino, a giant oil terminal being built on the Pacific coast to take the oil from the pipeline, which is being built by Transneft. Russia, the world's No. 2 oil producer, is fighting back at criticism from the United States and European states for recognizing Georgia's two breakaway regions as independent and sending troops deep into the tiny ex-Soviet nation. EU heads of state are set to meet on Monday at an emergency summit to discuss what to do about Russia, whose energy reserves give the Kremlin significant leverage over major EU economies. Russia's Asian pipeline, which will stretch from Eastern Siberia for thousands of miles to the Pacific coast, has been showcased by the Kremlin as a way to diversify Moscow's dependence on energy sales to the European Union. But the two-stage pipeline has been delayed by a year and building costs have soared as constructors grapple with the wilds of Eastern Siberia, where temperatures regularly fall to 50 degrees Celsius below zero and infrastructure is nonexistent.

PERSONAL CHARGE

Putin, who stepped down as president in May after eight years as Kremlin chief, is in personal charge of the pipeline project and while president he was instrumental in building closer ties with China. The latest launch date for the first part of the pipeline has been set for late 2009. The 1,680-mile pipeline is being built from Taishet in Eastern Siberia's Irkutsk region to Skovorodino on the Amur region near the Chinese border. It will cost more than $12 billion. About the distance between London and Istanbul, the Taishet-Skovorodino part of the pipeline will have a capacity of600,000 barrels per day. The oil terminal at Kozmino is being built where crude will be transported by rail from Skovorodino until a second section of pipeline can be built stretching to the coast. That second section is likely to cost at least another $12 billion, Russian officials have said. The project is a key part of Russia's aim to boost sagging oil production and diversify oil supplies to the booming economies of Asia, where China is hungry for oil to drive its economic transformation. State major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz), and Russian oil firms TNK-BP (BP.L: Quote, Profile, Research, Stock Buzz) and Surgutneftegas (SNGS.MM: Quote, Profile, Research, Stock Buzz), are seen as the main suppliers of the pipeline from the largely untapped fields of East Siberia.

Source: http://www.reuters.com/article/marke...15028720080831

Nabucco at risk after crisis in Georgia

The European Union's flagship Nabucco project seems to be up in the air due to the crisis currently pitting Moscow against Tbilisi, according to an analysis on an EU information website published yesterday. While most commentators stop short of saying that the main thrust of the Russian advance in Georgia was pipeline politics, all seem to agree that doubt has been cast on the reliability of Georgia as a major transit country to bring oil and gas supplies to Europe. In particular, the Nabucco gas pipeline is seen as a direct victim of the developments, according to the website, Euractiv.com. Nabucco is a 3,300-kilometer pipeline project that aims to bring gas to Europe from countries other than Russia by transferring natural gas from the Caspian basin to Austria via Turkey and the Balkan states. Turkey supports the Nabucco project as part of plans to seek alternative routes to diversify its energy resources so as not to depend on a single supplier.

Georgian officials have long complained that their country has become a victim of pipeline politics. President Mikheil Saakashvili reportedly claimed that the very fact that Georgia is already home to an oil line, the Baku-Tbilisi-Ceyhan, or BTC, pipeline, designed with the precise aim of circumventing Russia, was a major reason for the Russian assault. One branch of the BTC, which runs from Azerbaijan on the Caspian Sea through Georgia and then on to Turkey's Mediterranean coast for shipment, ends at the Georgian port of Supsa, which was blockaded by the Russian navy during the current crisis. “Russia is showing it controls this corridor,” said Giorgi Vashakmadze, an energy executive in Georgia, as quoted by the Wall Street Journal. “The Caspian region is wondering what this means for the future.” “After the military conflict with Russia, Georgia cannot be marked on oil and gas maps as a safe transit route, and no amount of support from NATO can change this alteration,” said Pavel K. Baev, research professor at the International Peace Research Institute in Oslo, as quoted in the Moscow Times.

Regarding the Nabucco project, Ed Chow of the Center for Strategic and International Studies was quoted by the Washington Post as saying Russia had raised serious doubts in the minds of Western lenders and investors that such a pipeline through Georgia would be safe from attack or beyond control of the Kremlin. He added that the pipeline “has always looked more like a diplomats' pipe dream than a viable economic project.” “Its promoters had not only failed to secure supply and transit agreements but also had yet to identify an oil company eager to champion the project and finance the pipeline,” stated Chow. The press agency Forbes also noted that while Russian troops are still in Georgia, the Russian state-controlled natural gas monopoly, Gazprom, has offered to buy all of Azerbaijan's gas exports. If Azerbaijan agrees, it could spell disaster for Western plans to decrease reliance on Russian supplies of natural gas. But, as with Russia's occupation of Georgia, the West will have little opportunity to stop the deal, according to the Forbes analysis.

Source: http://www.turkishdailynews.com.tr/a...enewsid=113587

Greece ratifies South Stream deal with Russia

The Greek parliament voted on Tuesday to ratify an agreement with Russia to build the Greek section of the South Stream gas pipeline. The deal was approved by 264 MPs out of a total of 300. The South Stream project is expected to transport 10 billion cu m of Russian gas annually across the Black Sea to the Balkans and onto other European countries, with the first deliveries scheduled to start in 2013. Apart from Russia and Greece, Bulgaria, Serbia, Hungary, and Italy are involved in the project.

Source: http://en.rian.ru/world/20080902/116490941.html


Further perspective on pipeline geopolitics:

GAZPROM’S SOUTH STREAM PROJECT CAN BE HALTED IN THE BLACK SEA

Gazprom and the Kremlin have lined up Central Asian gas commitments upstream and European Union markets downstream for the South Stream pipeline project. Russia’s project seems to enjoy an unstoppable momentum against its rival Nabucco and other Western-backed projects for Caspian gas to Europe. Nevertheless, South Stream can be halted in the Black Sea by Ukraine and Romania on a legal basis, at no risk to themselves and with appropriate Western support, until access can be opened to Central Asian gas for Nabucco. The grounds for halting South Stream are familiar from the debate on the merits of EU- and U.S.-backed Nabucco versus Gazprom’s rival project. If South Stream is actually built, it would, inter alia:

1) monopolize markets in central and southeastern Europe, including EU member countries, while significantly expanding Gazprom’s market share in West European countries ;

2) lock the Russian state monopoly in, and potential competitor suppliers out, for decades to come, in parts of EU territory ;

3) enable Gazprom to take over critical infrastructure in Europe as part of supply deals ;

4) deeply distort market economics through price dictation on gas and other forms of energy, also forcing consumers to bear inordinately high costs of Russian-delivered gas ;

5) help perpetuate Russia’s monopsony on Central Asian gas ;

6) facilitate Moscow’s nascent strategy to create a cartel of gas exporters (so-called “OPEC for gas”) under Russian leadership, with Iran in tow ;

7) enable Russia to control, through South Stream, the Southern Corridor gateway for Central Asian and Iranian gas to Europe in the future ;

8) set the stage for Gazprom’s continuing dominance in Europe through control of transport, even after Russia’s own gas export potential declines (as is forecast) in the years ahead ;

9) pose manifold risks to the integrity of political and financial systems in Europe, as already noticed in several EU member countries with non-transparent links to Gazprom and the Kremlin ; and

10) expose the EU to political whims of Serbia, a South Stream transit country, enticed by Moscow into ultranationalist politics, resulting in highly problematic relations to the EU.

These and other adverse consequences of South Stream can be avoided, if the project is stopped long enough for the EU and United States to set their own defective energy security strategies in working order. This would involve opening access to Central Asian gas through direct pipelines to Europe, as well as developing Iranian gas for liquefaction and shipping to international markets. The South Stream pipeline is designed to run from Russia’s Black Sea coast to a point near Varna in Bulgaria. In that country, South Stream would bifurcate into a southern branch via Greece to Italy and a northern branch via Serbia and Hungary to Austria. There, Gazprom is developing a major storage and transmission center for Europe near Vienna.

The pipeline’s section on the seabed of the Black Sea is the key to the entire project. Gazprom lacks the technology for building such an ultra-deep pipeline. Italy’s ENI is set opportunistically to provide that technology, as ENI did in 1999-2002 for Gazprom’s Blue Stream One pipeline on the seabed of the Black Sea from Russia to Turkey. The South Stream seabed pipeline is much longer and more challenging technologically and financially than Blue Stream One. South Stream’s 900 kilometer seabed section is planned to traverse Ukraine’s exclusive economic zone for most of its length, as well as a small part of Romania’s exclusive economic zone. This situation can give both countries potentially decisive leverage over the project.

Ukraine and Romania are not included in the South Stream project. Ukraine is, in a sense, an intended casualty of South Stream : this project is specifically designed to bypass Ukraine and reduce the share of Russian-delivered gas to Europe through Ukrainian pipelines (one motivation being to de-capitalize Ukraine’s transit pipeline system and introduce some form of “joint” control over it). Meanwhile, Romania is the only Nabucco consortium member to have turned down Gazprom’s offer to join South Stream. The country’s President Traian Basescu and parts of the government have correctly analyzed South Stream’s disadvantages and risks. Both countries are interested in stopping South Stream. This pipeline, if built, would kill Nabucco, thus depriving Romania of alternative gas supplies and transit revenue from the Nabucco project, to which Bucharest remains loyal. For its part, Ukraine is interested in continuing large-scale transit of Russian-delivered gas to Europe, as opposed to seeing part of that transit re-routed through South Stream.

The Black Sea does not have a “neutral” zone in the usual sense of the term. Riparian countries divide the sea into exclusive economic zones bilaterally. These maritime zones are immediately adjacent to each other. Ukraine’s economic zone abuts directly on those of Russia to the east, Turkey to the south, and Romania to the west. Romania’s and Bulgaria’s zones also border each other. Thus, construction of the South Stream pipeline on its presently designated seabed route from Russia to Bulgaria would require the consent of Ukraine and Romania.

Theoretically, Russia could build the South Stream pipeline through Turkey’s exclusive economic zone, en route to Bulgaria. However, one of Russia’s rationales behind South Stream is to bypass Turkey, just as bypassing Ukraine. The Kremlin has abandoned its earlier intentions to expand Blue Stream One on the seabed to Turkey and continue it as Blue Stream Two overland from Turkey to Europe. Instead, Moscow has chosen to circumvent Turkey through South Stream. This move avoids difficult dealings with Ankara on the terms of overland transit. It also implements Moscow’s broader strategy to switch from overland to seabed gas transit pipelines wherever possible. In this case, Russia prefers contending with the limited jurisdictions of Ukraine and Romania in their maritime economic zones, rather than the fully sovereign jurisdiction of Turkey on land.

Under international maritime law, Ukraine and Romania can not officially veto South Stream outright. But they can question it thoroughly ; can demand extensive study of the project’s impact on environment, shipping and maritime safety generally ; and are entitled to evaluate these studies and independently assess their findings. They are also entitled to demand modifications to the Russian-proposed route. In the Baltic Sea last year Estonia, Finland, Poland, Sweden, and Lithuania have used their rights under international law in this manner. They have thoroughly questioned Gazprom’s Nord Stream seabed pipeline project in most of its aspects and demanded modifications of its route. As a cumulative result, Nord Stream has been temporarily halted, and its overall prospects seem increasingly clouded for intrinsic reasons also.

Russian officials such as Deputy Minister of Energy and Industry Anatoly Yanovsky and Grigory Vilchek, deputy head of Piter Gaz (involved in the Nord Stream impact studies), now recognize that the government and Gazprom have failed to initiate consultations with Ukraine and Romania about South Stream’s seabed section. Moscow seems to repeat the costly error it made when failing to hold advance consultations with Baltic Sea riparian countries about the Nord Stream seabed pipeline. Whether these errors are of omission or of commission seems unclear. What is certain is that Ukraine and Romania — similarly with the Baltic Sea countries — hold legal leverage of a potentially decisive character over seabed pipeline projects.

Source: http://www.cawa.fr/gazprom-s-south-s...cle002167.html


And in related news:

Kazakhstan considers Russia strategic partner – military chief

CHEBARKUL RANGE, Chelyabinsk region, September 1 (Itar-Tass) - Kazakhstan sees in Russia a strategic ally and partner, the chief of Russian-Kazakh tactical exercise, Mayor General Nikolai Kuatov said at the manouvers’ launch on Monday. “The fact that one third of our land frontiers stretches over Russia’s southern regions inevitably persuades us to choose our foreign policy priority and build good-neighbourly relations, he said stressing that the priority is the constructive and fruitful development of military cooperation with Russia. “Therefore Kazakhstan considers Russia its strategic ally and partner both in political and military spheres,” Kuatov said. “The world community continues to face a steamroller approach in international relations that is based on the use of off-line, extraordinary and unpredictable actions, including political and psychological pressure, information war, the use of force and economic sanctions,” he said. “Therefore without adaptation of the country’s defence policy and military structure to changing realities it would be impossible to ensure effective protection of its vital interests,” Kuatov said. The deputy commander of Russia's Ground Forces, Lieutenant-General Valery Yevnevich said that “our countries’ efforts aimed at raising efficiency of joint actions become more practical.” He expressed confidence that “our countries’ cooperation in the fight against terrorism, separatism and extremism will have a fresh impetus to further development.” “We are always ready to develop partnership, upgrade interaction and strengthen relations both in military and political spheres,” Yevnevich said.

Source: http://www.itar-tass.com/eng/level2....6329&PageNum=0

Russian-Kazakh war games start in Urals

Russia and Kazakhstan launched the first stage of a strategic exercise in the Chelyabinsk Region in Russia's Urals on Monday, the Ground Forces' press service said. The first stage of the drills, named Center-2008, will run through September 5, involving about 1,500 troops on each side. The subsequent stages in the Chelyabinsk Region, which borders on Kazakhstan, will run until September 27, with 12,000 troops taking part. The exercises will also involve around 1,000 armed vehicles, over 50 fixed and rotary winged aircraft, including Su-24 Fencer fighter/bombers, and airlift and attack helicopters Mi-8 Hip and Mi-24 Hind. The exercise is designed to contribute to "the further development of a united outlook and approach to joint planning in the interests of maintaining the national security of the two countries," the statement said.

Source: http://en.rian.ru/russia/20080901/116440323.html

Gazprom Neft looks to send crude to China via Kazakhstan

Gazprom Neft, the oil arm of Russian energy giant Gazprom, plans to apply for permission to ship crude oil to China via Kazakhstan in the fourth quarter of this year and in 2009, the company CEO said on Monday. "We are the only company that has a direct contract with China Oil," Alexander Dyukov said. It was earlier reported that Gazprom Neft had not been included in the schedule for oil shipments to China via Kazakhstan along the Atasu-Alashankou pipeline. The company said it had applied to the Energy and Fuel Ministry for permission to pump 1.08 mln tons of crude in April-December 2008, but ran into transit problems with the Kazakh state transport monopoly KazTransOil. A transit agreement signed between Russia and Kazakhstan last November provides for the export of up to 5 mln tons of oil per year from Russia to China through Kazakhstan, along the Atasu-Alashankou pipeline.

Source: http://en.rian.ru/business/20080901/116454626.html