Gas pipeline poker

Russia and Europe are heading for a grim race in the construction of a gas pipeline under the Black Sea. Or so it would appear after the signing of a contract between Russian Prime Minister Vladimir Putin and Turkish Prime Minister Recep Tayyip Erdogan.

There's a need for both the Russian South Stream as well as the European Nabucco pipeline, because gas consumption in Europe will increase in the next decade.

However, the Russian project is ahead at the moment, if you consider it from a political and business point of view.

The Russians will be the first to begin construction and they can probably more easily afford the estimated 20 billion euro ($28 billion) costs with their state-run Gazprom. A private consortium is to build the EU pipeline for around 10 billion euro ($14 billion).

The Nabucco project has to be run as a business whereas Gazprom can afford massive losses.

EU members disagree

European states such as Greece, Italy, Bulgaria and Austria as well as Turkey are partners in both pipeline projects.

This indicates two things: it's everyone for himself when it comes to energy security. A uniform European approach is not expected and is also not desired, for energy provision falls in the jurisdiction of the member states. A consistent energy policy in the European Union is worlds away compared to the largest producer, Russia, because the 27 member states cannot agree on what they really want.

After their experiences as part of the former East Bloc, the Baltic States and Poland, the Czech Republic and Slovakia want to avoid any dependence on Russia.

The largest group in the EU, including Germany and France, are compliant customers who know that they will be dependent on the Russian gas stopcock for a long time to come.

In principle, it is only right that the North Stream in the Baltic and South Stream and Nabucco in the south should provide alternatives to the present supply lines through Ukraine and Belarus. Above all, the loser will at first be Ukraine which will be deprived of its status as an important transit country to Turkey.

The Caucasus question

The Caucasus plays a key role in the great gas debate. Important Gas and oil pipelines, built with the help of the US, run through Georgia which is in a long-term dispute with Russia.

Neither South Stream nor Nabucco can operate properly without a stable Georgia, Azerbaijan and Armenia.

And even more important than the question of the pipeline routes is the question of the gas supplier. Who should supply the gas for the pipelines? Russia and the EU are endeavoring to persuade the central Asian states, especially Turkmenistan, Iraq and Iran to be the suppliers. That's where the actual competition is.

Russia does not produce enough from its own oil fields to be able to fulfill the contracts and thus needs new sources. The EU is also endeavoring to strengthen deliveries from the Mediterranean area and Norway but here too new methods of conveyance are needed.

In order to guarantee the supply of energy, the EU has to do some homework on its own territory. Europe desperately needs North-South and East-West pipelines in order to be able to smooth out production shortfalls among its member states.

France advocates that the Russians should not only be viewed as competitors that one simply has to keep out of the European market. Rather, the EU, Russia and Turkey should run all the pipelines together.

The happy winner at the moment, thanks to its geographical position, is Turkey. It will become the most important land of transit and is connected via the third pipeline, Blue Stream, directly with Russia.

Turkey could not do anything else than sign the contracts with Putin, after all, Russia supplies two thirds of the gas for the Turkish market and thus possesses a virtual supply monopoly.

Author: Bernd Riegert (td)
Editor: Andreas Illmer