As the New Year began, the new ESPO pipeline — between
eastern Siberia and the Pacific Ocean — began delivering Russian oil to
energy-hungry China, overturning decades of Russian dependence on European
markets.
This has strategic ramifications too, as China is regarded
as the world’s number one energy consumer, whereas, not stifled by output
quotas, Russia has been the world’s top oil producer for the last many months.
The pipeline opens up a huge, new market for Russian gas. It
is expected to move 15 million metric tons of crude each year until 2030,
beginning in the Russian town of Skovorodino, entering China at Mohe and ending
at Daqing in northeast. The second stage of the pipeline is due to be finished
by 2014. It will then span a distance of about 4,700 km.
The pipeline is helping Russia diversify its export and
reduce its dependence on Europe to sell its gas. “Now, Russia’s oil
infrastructure is pointing east and its gas infrastructure will also soon be
pointing east, as well as west,” said Liam Halligan of Prosperity Capital. “Russia
can play one side off the other. Russia can command higher prices. Russia can
expand its hydrocarbon exports.”
Russia was reportedly in talks with China on natural gas
supplies from 2015. “Russia is ready to meet China’s full demand in gas,”
Russia’s Deputy Prime Minister Igor Sechin stated in Beijing last year.
An intense cat and mouse game is on. The battle to secure
routes for supplying energy from the landlocked, energy rich, Central Asian
states is intensifying. The region contains giant fields such as Kashagan in
Kazakhstan, the world’s largest offshore oilfield, and South Yoloten in
Turkmenistan, one of the world’s top three gas fields.
Energy rich Central Asia is connected by pipelines in every
direction, yet, the bulk of its resources continue to flow west. However, the
biggest problem faced by the landlocked Central Asian producers — including
Azerbaijan, on the other side of the Caspian Sea — remained how to deliver it
to the markets. In process, the central Asian states are also striving to loosen
the Russian stranglehold on their export routes.
Kazakhstan is faced with the issue of carrying as much as
1.5 million bpd crude from Kashagan to the markets, after the field comes on
line in 2012-13. Most of it will flow west, either through the existing CPC
pipeline to the Russian Black Sea port of Novorossiysk or across the Caspian
and then into the existing BTC line, which reaches open water at the Turkish
Mediterranean port of Ceyhan, bypassing Russia.
The Caspian republics of Azerbaijan, Kazakhstan and
Turkmenistan hold close to 50 billion barrels of crude oil. They also have some
12.5 trillion cubic meters (tcm) of gas.
Traditionally, Russia has been Turkmenistan’s largest gas
customer. Yet there are efforts to change the landscape. The 2,200km Central
Asia Gas Pipeline is bringing gas from Bagtiyyarlik in north Turkmenistan
across Uzbekistan and Kazakhstan into the Chinese province of Xinjiang. At
present, only a trickle of gas flows along the line, but by 2014 the pipeline
should be carrying some 40 billion cubic meters a year.
Interestingly, the pipeline also breaks Russia’s
long-standing stranglehold on Turkmenistan’s gas supplies. “This project has
not only commercial or economic value. It is also political,” Turkmenistan’s
president said.
Stakes are high in the game. To torpedo the
Iran-Pakistan-India pipeline, Washington has been actively pursuing the TAPI
pipeline project bringing gas from Turkmenistan to energy deficient Pakistan
and India via Afghanistan.
Azerbaijan is working on a deal to sell gas from the $25
billion second phase of the Shah Deniz project to European customers via
Turkey. And this is contentious. Europe is pursuing the Nabucco natural gas
pipeline to break the Russian grip on the regional energy sector. The 3,300 km
long pipeline will bring gas from Azerbaijan, other Caspian states and even
Iraq. It will go through Turkey, Bulgaria, Romania, Hungary and Austria,
bypassing Russia.
The EU currently relies on Russia for a quarter of its total
gas supplies. Of the bloc’s 27 member states, seven are almost totally
dependent on Russian gas. The EU wants to change this picture for strategic and
geo-political reasons. Russian analysts believe that by 2020, Russia’s share of
the European gas market will increase from the current 26 percent to 33 percent
as the “local production is going down and demand is increasing.”
Russia is not sitting idly too. It is endeavoring to
diversify its export options by building its Nord Stream gas pipeline through
the Baltic Sea and the South Stream pipeline through southern Europe; it is
determined to consolidate its situation.
Russian energy giant Gazprom is building two new $20 billion
pipelines to Europe. The first, Nord Stream, would go from western Russia under
the Baltic Sea to Germany, while the second, called South Stream, would go from
Russia’s south coast under the Black Sea to Bulgaria, eventually ending up in
Italy. Gazprom wants to pump gas under the sea directly to Europe so it can
avoid transit countries such as Ukraine, which lie along the existing land
routes.
Construction of the first stage of the Nord Stream pipeline
is already underway. The pipeline is due to start delivering gas in 2011, with
a second pipe ready by 2014 that will double the capacity.
Europe is at a crossroad. While speaking on a BBC program in
2009, a senior Gazprom executive termed the situation rather bluntly: “Only
three countries can be suppliers of pipeline gas in the long-term — Russia,
Iran and Qatar. So there is no other choice than to deal with these suppliers …
Europe should decide how to handle this situation... and if Europe doesn’t need
our gas, then we will find a way of selling it differently.
The ESPO pipeline is an indication that Russia is
endeavoring to diversify it gas away from Europe. EU dependence is leading to a
new phase of the Great Game. Marshall Goldman, a professor at Harvard
University, underlines that Europe is sleepwalking into an increasingly
dangerous level of dependence on Gazprom.
“Russia is using energy as a political weapon and I would
argue that it is stronger than during the Cold War when it had nuclear
weapons,” he said.
He argues that Europe has already been divided by Moscow’s
skilful political use of its energy resources. Nord Stream is being built by a
consortium that includes top German and Dutch energy companies, and which has
the former German Chancellor, Gerhard Schroeder, as chairman of its
shareholders’ committee. It also has some backing from the European Commission,
which describes it as a “project of European interest.”
While the Commission seems unconcerned by the long-term
implications of Nord Stream, there is real worry about South Stream. This
pipeline will be built across the Black Sea to Bulgaria and into the heart of
Europe. For Europe this could spell disaster. It could kill off Nabucco, one of
its most important schemes for breaking away from its dependency on Russia.
With gas pipeline war under way, energy and politics seem
inseparable as ever.
