Russia’s Energy Strategy Suffers a Major Setback

Courtesy European Dialogue

by Roman Kupchinsky

Has the European Union at long last found the wherewithal to stand up and draw the line on Vladimir Putin’s use of energy as a political weapon? At this week’s Ankara conference about the Nabucco pipeline, the EU displayed unusual tenacity and showed much needed foresight by engineering what many regard as a breakthrough agreement on finally beginning construction of Nabucco and filling it with gas from what many believe will be reliable suppliers. This measure, if implemented, would help stop Russia's much touted South Stream pipeline project and begin to block the Kremlin’s strategy of using gas to further its foreign policy.

The July 13 conference in Ankara resulted in an agreement between the governments of Turkey, Austria and Hungary along with Bulgarian and Romanian energy companies to sign a long-awaited agreement to begin construction of Nabucco.

The newly elected Bulgarian Prime Minister Boyko Borisov played a major role in the agreement. By deciding on July 10 to suspend all negotiations about future deliveries of Russian gas to his country and put on hold Bulgaria’s role in the construction of the Russian South Stream gas pipeline project as well as to end the agreement with Russia to construct the Belene nuclear power plant, he effectively put Putin and his government on notice that business as usual had ended.

However, Ivan Danilin, an analyst for the “Regnum” website, does not believe that “Nabucco” has moved forward by any means. He claims that the suppliers have not signed on to the project and without them the signing ceremony is merely a cosmetic exercise.

Yet, last Friday, Baku and Ashgabat announced their willingness to participate in Nabucco. Turkmenistan for the first time also agreed to take part in the project. On July 10, the President of Turkmenistan Gurbanguly Berdimukhamedov announced "Currently, Turkmenistan has excess gas for trade. We are ready to send it abroad to any customer. This includes Nabucco."

This poses major questions about the credibility of the head of Austria’s OMV Gas Company, a major player in Nabucco, Wolfgang Rittersdorf,who told Kommersant Daily on July 9, that Turkmenistan is not being considered as a supplier of gas to Nabucco in the near future.

When asked about the OMV sale of shares of the Hungarian company MOL to the secretive Russian company Surgutneftegaz, Rittersdorf refused to comment and redirected the questions to the Russian company, thereby raising more questions than answers.

EU's Southern Corridor Summit Endorses Nabucco Project

Following the formal launch of the Eastern Partnership Initiative on Thursday, May 7, the Czech government, which currently holds the EU's rotating presidency, hosted another high-profile event - the Southern Corridor-New Silk Road Summit - on Friday, May 8. Attended by the heads of states of Azerbaijan, Georgia and Turkey, this summit registered a significant headway towards the formalization of the Southern Corridor concept, which envisions the creation of multiple pipelines supplying natural gas from the Caspian Sea and the Middle East to the European markets. In particular, in a sign of the EU's increased aspiration to reduce its energy dependence on Russia, the energy summit in Prague marked considerable advancement in the direction of the realization of the Nabucco pipeline project, which is depicted in the map below.
As initially envisioned, the Nabucco pipeline will annually bring up to 31 billion cubic meters of natural gas from the Caspian Sea to Europe following the Azerbaijan-Georgia-Turkey-Bulgaria-Romania-Hungary-Austria route. The declaration adopted at the summit formalizes the commitments of the consumer (EU), transit (Turkey, Georgia) and producer (Azerbaijan, Egypt) countries to the Nabucco project. Even though the representatives of Kazakhstan, Turkmenistan and Uzbekistan - the Central Asian producer states - refused to sign the summit declaration at this juncture, as the managing director of Nabucco gas pipeline consortium* Reinhard Mitschek explains, the consortium members still have time to sign respective gas supply agreements by the end of this year. In this regard the agreement concluded between the German energy company RWE AG and Turkmenistan in April is a major achievement because it paves the way for resolving the problem of filling the Nabucco pipeline with enough gas (currently only fifth of the gas needed has been secured from Azerbaijan), which is a vital consideration for the commercial viability of the entire venture. Furthermore, the Turkmen Foreign Ministry delegation is to pay an official visit to Brussels in early June and the energy issues are expected to top the agenda of the meetings.

Slated to be completed by 2013, the Nabucco pipeline will become operational only in 2015, according to the most recent update provided by the EU Energy Commissioner Andris Piebalgs in January. Even when operating at its full capacity, however, it will be able to supply about 5% of EU's gas needs. Similarly, if two other pipelines envisioned under the Southern Corridor concept - the White Stream (connecting Georgia and Romania via the Black Sea) and the Iterconnector between Turkey, Greece and Italy (ITGY) - also become operational, the combined supply of three pipelines will satisfy only 10% of EU's total gas needs by 2020.

Thus, considering that Russia currently provides about a quarter of EU's natural gas, Moscow's importance as Europe's primary energy partner does not appear to be in jeopardy anytime soon. Nonetheless, the signature of the Egyptian Minister of Petroleum Sameh Fahmy on the summit declaration indicates the EU's willingness to explore the possibility of extending the Southern Corridor to encompass the vast natural gas reserves in the Middle East. The declaration makes mention of the urgency of signing a memorandum of understanding on energy with Iraq (conspicuously Baghdad failed to send a representative to the summit in Prague). If such overtures are successful and they are coupled with corresponding pipeline capacity upgrades, then the Southern Corridor may one day be on a par with Russian gas deliveries. Meanwhile, the preparatory engineering work for the construction of the Nabucco pipeline commenced in April. The European Investment Bank is providing €200 million ($240 million) for this purpose, as part of the EU Recovery Plan.

* NOTE: Founded in 2004 and based in Vienna, Austria, the Nabucco gas pipeline consortium consists of the following energy companies: OMV AG (Austria), Mol (Hungary), RWE AG (Germany), Bulgargaz EAD (Bulgaria), Transgaz SA (Romania) and Botas (Turkey).

EU and Six Former Soviet Republics Launch Eastern Partnership Initiative in Prague

On Thursday, May 7, the Czech Republic, the current EU president, hosted a half day summit of the Eastern Partnership Initiative, which was originally conceived by Poland and Sweden and which is aimed at deepening ties between the EU and six former Soviet Republics - Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. According to the final document of the summit - the Joint Declaration - the EU plans to engage the "Eastern European Partners" in the four areas of cooperation, including the following: democracy, good governance and stability; economic integration and convergence with EU sectoral policies; energy security; and contacts between people. In exchange for the non-binding pledge by the six post-Soviet states to commit to the "fundamental values, including democracy, the rule of law and the respect for human rights and fundamental freedoms, as well as to, market economy, sustainable development and good governance," the 27-nation bloc will offer the €600 million ($804 million) package of targeted assistance programs until 2013.

As this primer explains, the Eastern Partnership is a comprehensive outreach effort through which EU intends to align the six countries with European aqui communitaire and therefore make them membership-ready. Due to the current enlargement fatigue, the major European powers, which are sometimes referred to as the "Old Europe," appear to be less enthusiastic about the Eastern Partnership than the newly admitted EU members. This was reflected in the noticeable absence of British, French, Italian and Spanish leaders at the Prague summit. In this regard German Chancellor Angela Merkel proved to be a surprising exception.

Notwithstanding the differences of opinion between the European capitals regarding the scope and purpose of the Eastern Partnership, the EU tried its best to present the initiative in a "win-win" light to the weary Russians. Chancellor Merkel explicitly stated in Prague, "This Eastern Partnership is not against anyone, not against Russia." The same sentiment was echoed in the remarks delivered by the President of the European Commission José Manuel Barroso, who declared that Russia would only benefit from the eastward expansion of European values because "when we increase prosperity, when we increase stability, we are increasing it not only for us but all the others as well." However, the Czech hosts were less circumspect in their comments as they acknowledged that the Eastern Partnership is also aimed at drawing the six former Soviet Republics out of Russia's orbit. The Czech Prime Minister Alexandr Vondra pointed out, "Foreign policy is always about the projection of interests. You can project your interests, but you must give the respective countries the freedom to make choices." A senior Czech official speaking on the condition of anonymity admitted, "We're not living in a vacuum. Russia might be hostile to the eastern partnership, but that's their problem. They see the world through zero sum game lenses."

Regardless of how often the EU officials will try to reassure Moscow that the Eastern Partnership is not aimed at curbing Russia's influence in the post-Soviet space, as the Radio Free Europe/Radio Liberty's Ahto Lobjakas explains, perceptions matter. Aptly calling EU's Eastern Partnership an "accidental sphere of influence," Lobjakas reminds us of what the Russian analyst Sergei Karaganov recently told a conference in Germany. Karaganov noted that the "core of all differences between the West and Russia is the question of whose sphere of influence the Soviet successor states fall into." Mikhail Margelov, an influential Russian politician, who is the Chairman of the International Affairs Committee of the Federation Council (the upper chamber of Russia's bicameral legislature - the Federal Assembly) interpreted the fact that a day after the Eastern Partnership event the Czechs hosted the EU South Corridor summit dedicated to the Nabucco gas pipeline project as a geopolitical ploy intended to increase Western influence over Russia's former Soviet satellites. Margelov stated, "The juxtaposition on the agenda of the Prague summit of issues of organization of the partnership and of the Nabucco pipeline project — whose route, as you know, bypasses Russia — reveals the true intentions of the organizers of the Eastern Partnership."

As critics suggest, the Joint Declaration of the Prague Eastern Partnership Summit falls short of making membership promises to the six states. Nor does it specify any concrete steps envisioned to relax the visa regime to ease the travel restrictions. And, as it turns out, only €350 million ($475 million) of the pledged assistance package represents new money. Equally important is the fact that only two out of the six recipient states - Georgia and Ukraine - even remotely satisfy some of the aqui communitaire requirements while two - Azerbaijan and Belarus - are openly autocratic and four - Armenia, Azerbaijan, Georgia and Moldova - are beset by territorial conflicts. But the most important aspect of the Eastern Partnership that will determine its short-term viability is what the EU is prepared to do to defend this important outreach initiative in the face of Russia's resistance.