by Jerome a Paris
Wed Sep 7th, 2005 at 05:40:39 AM EST
Russia and Germany to seal $5bn gas pipeline agreement
Vladimir Putin, Russia's president, will this week visit Germany to mark the signing of an agreement to build a $5bn gas pipeline linking Russia and Germany under the Baltic Sea.
(...) Gazprom will own 51 per cent of the North European Gas Pipeline, while the German partners [Eon and with Wintershall, a subsidiary of BASF] will each hold just under 25 per cent.
(...) this [is] the first concrete step towards building a link expected to carry 55bn cu m of Russian gas to western Europe through two parallel pipelines that would begin carrying gas in 2010. Gazprom currently exports about 116bn cu m of its gas through overland pipelines crossing Ukraine, Belarus, Poland and Slovakia.
The Baltic pipeline has been condemned in Poland and other eastern European states as a manoeuvre designed to make them more vulnerable to Russian pressure.
Coincidentally or not, the FT publishes on the same day a letter from an unhappy Pole:
Time for a mature Polish-German dialogue within EU
(...) plans for the Baltic pipeline are going ahead when there is a perfectly viable and much less expensive alternative route across Poland (Jamal 2). The pipe, which was to have run parallel to the existing Jamal 1 pipeline, was first planned by the Russians in the early 1990s and was to have been completed by 2002. It has now been shunned by Gazprom, which explains it no longer wants to be dependent on transit countries, in this case Poland and Belarus.
It should also be noted that the cost of the underwater pipeline to its investors compared to Jamal 2 is double or more of the sums in dispute between the member states including Germany over the next European Union budget running from 2007 to 2013.
Would it not be better if the next German government recognised that policies towards Germany should be conducted together with other member states, new and old, within an EU context? This would signal that Germany indeed intends "to remain anchored in the EU", which would become more viable at a critical time following the collapse of the EU constitution and the row over the next budget. Also Angela Merkel, the Christian Democrat leader, would no longer have to assure Warsaw that there would be "no deals over the heads of the Poles"; nor would Ms Merkel fear that Poland would determine the content of Germany's relationship with Russia. (...)
Krzysztof Bobinski, Vice President, Unia & Polska Foundation
The fact is, the Poles have behaved with the Russian gas pipelines just like the Russians have with the Caspian oil pipelines - as pains in the ass, trying to use the pipelines for political games and brinkmanship games. They forced Gazprom to cough up a lot more money than initially intended to finance the construction of Yamal 1, and they proved that they were little more reliable than the Ukrainians (the first country to have a hold on Gazprom through its export pipelines), so I sympathise with Russia's decision to diversify its export routes. It's good business to diversify your risks as much as possible, and the Poles can only blame themselves if they have killed the goose that lays the golden eggs (transit fees for the new pipeline would have been quite significant, probably close to a billion euros per year for the mooted volumes).
Calling for Germany's European solidarity there is slightly disingenuous, as the interests of the Germans is to have a reliable supply of gas, and the Poles were trying to extract as much value for themselves from the deal by using blackmail-like arguments - the unreliability of the alternative, Ukraine, and the need for their own reliability to be "properly remunerated". They played a game of brinkmanship and apparently lost, pissing off both the Russians and the Germans in the process, I expect...
Putin, as quoted in the article, actually does a good job of presenting the Russian gas strategy:
"We know it's a concern for our Polish partners. But politics doesn't come into it," said Mr Putin, arguing a direct link would lower transit costs, reducing energy prices for west European consumers. In any case, Russia would not stop using the existing routes. It was increasing exports and diversifying its routes to promote stability of supply, he said.
Mr Putin explained that Russia wanted to expand energy exports in other directions, including to North America and east Asia.
He repeated support for a northern gas export project in which tankers are to take liquefied natural gas from Russia's northern port of Murmansk to the US. The scheme has been frequently aired but has yet to materialise. The project is likely to be raised again when Mr Putin visits the US for the United Nations General Assembly next week.
The Russian president also backed the proposed east Siberian oil pipeline from Lake Baikal to China and the Russian Pacific port of Nakhodka. "We don't want to supply only one consumer. We want to reach world markets," said Mr Putin.
He repeatedly made clear that economics would determine Russia's energy strategy. However, in a separate meeting, a senior Foreign Ministry official argued that it was "natural" to use energy for diplomatic purposes as well. He said: "I think it's self-evident that energy diplomacy is something that many countries use and with our resources we think we can use this energy to strengthen our position [in the world as well as make a profit."
All this makes a lot of sense. Gazprom has actually had a very sound development strategy over the past 30 years, steadily building export pipelines towards its main markets: the main pipeline via Ukraine, Slovakia to Austria, Italy and Germany, the southern line to Greece and Turkey, the northern line via Poland, an additional route to Turkey under the Black Sea, and now this Baltic route (and the mooted Asian routes).
All these routes are progressively filled up, so the new capacity is not built to spite any of the transit countries, but to build up exports while avoiding a single route - and point of vulnerability. Gazprom has been an extremely reliable provider of gas to Europe and is keen to remain so, and its main clients, the gas companies form all the big European countries, are similarly keen to keep the gas flowing uninterrupted to them.
And Poland's aggressive behavior precisely shows why it makes sense to have different routes and not rely on a single partner, especially when they want to use the pipeline as an instrument of leverage.
As for the more general relationship between Europe and Russia on the energy side, see it as a long marriage, with each pipeline as a kid which further ties the parties together in a web of mutual obligations and responsibilities. Both sides are totally and fully integrated via the infrastructure in a co-dependency relationship that no one can really use agaisnt the other. Europe needs Russian gas, and Russia needs the hard currency that comes form that gas (25% of Russian exports and a good chunk of the federal revenues).
Poland should stop these silly games. (And Russia should learn from the same to stop playing identical games on the oil side for the Caspian resources).