6 April 2010

Supply Perspectives of Russia Kremlin Winking at NABUCCO - Özer Çetinkaya

It was not expected that increase of production, growth and prosperity would arise Russia again. This period which was started with the collapse of USSR, had reached its peak with the increase of oil prices by the impact of US invasion of Afghanistan and Iraq. Moscow government made a strategic decision in 2000. Control of Russian economy should be transferred to the state solidly. Economy had transformed to a new system which is based on raw material exportation. Investments were slipping towards EU member Eastern Europe and Pacific. Energy demand in these region was expected to increase slightly per year. Besides all these, Russia stands in the middle of EU and Pacific and Russia controls the energy valve. Plan was worked well in the last 10 years. Russia embraces Europe with its strong claws like a grown-up bear and it challenges Atlantic Alliance. If Moscow is the body and Kremlin is the brain of this bear, GAZPROM and LUKOIL are the claws of this bear.

Europe and Russia

Europe and Russia are onto forming a strategic partnership since the US invasion of Iraq. This progress is leaded by Germany. The basic element of strategic partnership is economics actually and energy has the main role in the economic cooperation. Europe is importing %40 of its natural gas from Russia. 2/3 of Russian gas export is with Europe. EU also imports the 1/3 of its oil demand and ¼ of its coal demand from Russia. European companies are the main investors at Russian oil, gas and electricity sectors. Russian energy giants’ role in European Markets is also rising. Mutually and strongly developed European – Russia relations in recent years disturbs Washington. Washington brought up the threat of dependency to Russian energy for Europe. Arguments brought by Washington are stated as the vital for EU:

- Moscow is using energy as a political weapon.
- Russian companies do not invest on new areas.
- Russian companies have a tendency towards Asia.

Russian energy policy and supply perspectives are more likely to aiming at gaining economic power than gaining political power. Russia will become a bigger power by economic income. It means the Russia’s becoming a global, independent power in the conditions of 21st century.

Is the Islamic Countries True Choice?

What is the meaning of spreading Russia frighten among Europeans? EU had given a long list of duties. Decreasing the state role in Russian oil and gas market is the first duty on the list. Concerns of Europe are not derived from Moscow, main source of these concerns is Europe itself. Enlargement towards eastern countries was the role for EU which was designed by Atlantic Alliance. Atlantic bounded European Countries lost their ability of strategic thinking while they are trying to understand their role. EU preferred to trust far Islamic countries energy instead of establishing an energy partnership with Russia. Ambiguities like invasion of Iraq and Iran’s future helped Europe to see their strategic mistake. EU steps seems to be the efforts for fixing the strategic mistake by tactical steps.

Will Kremlin Participate to NABUCCO?

What if Russia does not have a desire to produce more natural gas? This question is an argument brought for scaring Europe in fact. For supporting this question, decrease of Russian oil produce which was had a growth capacity of 8% for years, since 2007 is stated as evidence. Situation may seem like this when looking at it for one, but it should not be forgotten that 2007 global economic crisis is still effective. Economies are shrinking and countries such Greece and Spain are in the edge of bankrupt. Even there is a positive movement in global economy in 2010; its reflections can only be seen after 2011 on Russian energy production. Demand decreasing also decreases the energy prices. Russia’s response would be a decrease in production. Gazprom will continue to be the leader in the gas production with its financial power and with its ability of strategic planning. Gazprom will reach till the North American market with its LPG raid. Two main issues will determine Russia’s energy strategy in the future:

1- Participation to NABUCCO
2- Partnership with China in big projects.

Germany requested Kremlin to participate NABUCCO project in senior level. This request shows the tactic change of EU which is problematic with finding gas sources. Kremlin has not decided yet. Attitude of Azerbaijan and Turkmenistan will be effective on this decision. If Azerbaijan and Turkmenistan decide to develop cooperation with Russia, Russia will accept to participate NABUCCO. Russia advanced to be a real alternative for Azerbaijan. Azerbaijan assumes the rising in Europe as the most important potential strategy so Azerbaijan desires to canalize its consumers to put pressure on Turkey. Natural gas which will reached to Russia by Azerbaijan is 500 mcm per year. This amount does not make Azerbaijan advantageous. Azerbaijan’s other neighbor Iran demands gas in winter months especially Northern Iran. Turkmen gas meets the Iran gas demand already. New pipeline which was started operating, is enters Iran through Devletabad. This pipeline and Körpece-Kurtköy pipeline can provide 14 bcm of natural gas per year. This capacity may increase to 20 bcm. Also Azerbaijan exports natural gas with advantageous conditions. With the agreement which will be active until 2013 1.5 mcm of natural gas per day will be transferred to Georgia. Subject of extending the agreement is another issue. All these issues bring up the GAZPROM as a real alternative for Azerbaijan.

New Plans of Russia

Moscow prefers to establish partnerships with local energy distributors to ensure Europe’s trust instead of increasing energy production. Situation is same in the Asia-Pacific region too. Studies on huge projects continue by the association of GAZPROM and China. Fundamental issues in Russia’s new strategy proof this point:

a) Diversifying export market.
b) Diversifying product application areas.
c) Focusing on Asia.

Under those conditions Europeans should look forward to sign long term supply agreements instead of concerning about energy dependency to Russia. Russian entrance understood as a new threat for Europe. In fact, Russia’s partnership with Nigeria, Algeria and Libya provides new options to overcome increasing demand of Europe.

Box – 1
NABUCCO – South Stream Comparison

6 NABUCCO countries have an import amount of 80 bcm per year. Russia established a 900 km long pipeline project called South Stream which is passes through 2000 m deep of the Black Sea and connects to Bulgaria gas network. South Stream pipeline will divide into two directions. One direction will reach Austria through Serbia-Hungary route and the other direction will reach to Italy through Greece. Italian ENI company is an important partner of Russia in this project. NABUCCO country Hungary is also participating South Stream project. Kazakhstan and Turkmenistan which does not have a tendency to provide gas to NABUCCO, signed a gas agreement with Russia for South Stream Project. South Stream’s capacity will be 30 bcm/year in the beginning then capacity will increased to 63 bcm/year. South Stream does not have problems such as providing gas and it will be finished before NABUCCO in 2015.

Box – 2

Supply-Demand Expectations for EU


2015 614 bcm 282 bcm 332 bcm 250 bcm

2030 694 bcm 217 bcm 467 bcm

Box – 3

Production Strategy of Russia

Expected oil production in the Russia’s 30 year plan for energy is 490-520 million tons. 200-215 million tons of this production will be expended by internal consumption. 100-105 tons are planned for Asia-Pacific region. 30-35 million tons of the rest will be reserved for Commonwealth of Independent States. The rest 150-160 million tons above the amount sold to Europe in 2001; 181 million tons.

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