Over the course of three weeks, Russia has brokered a series of multinational deals that will expand the reach of its energy transit routes. Controlling one fifth of the world’s known natural gas supply, initiatives to secure energy reserves is taking top priority in the Russian agenda. Locking up deals in Central Asia and Europe will reinforce a growing dependency on Russian energy that will enhance Russian political influence in the international community.
Russia’s Most Valuable Player
At the center of Russia’s energy expansion is the giant state owned gas company, Gazprom. Gazprom produces nearly 90 percent of Russia’s natural gas and owns pipelines that stretch across 150,000 km. Over 25 European countries rely on Gazprom produced gas. In a majority of the European countries importing Russian gas, Gazprom is accountable for a large percentage of each country’s gas consumption. According to an Energy Information Administration report, Gazprom gas accounts for 96 percent of gas consumption in Greece, 84 percent of gas consumption in the Czech Republic, and 43 percent of gas consumption in Germany. Gazprom also has a strong grip on countries in the Baltic region and Commonwealth of Independent States accounting for 100 percent of Belarusian consumed gas. Russian supplied gas accounts for a third of Ukrainian consumption while the remainder of its natural gas is delivered from Turkmenistan via Gazprom pipelines.
Moves to secure future projects for Gazprom will further bolster Russia as a dominant energy exporter.
A Monopoly Gaining Momentum
Russia has gained prominence in the energy arena through several recent events.
• On May 12, 2007, Vladimir Putin negotiated an agreement between Turkmenistan, Kazakhstan and Russia that will enhance Russian control of gas in the Central Asian region. The deal outlined plans to build a natural gas pipeline around the Caspian Sea and to improve upon existing pipelines in Uzbekistan. Russian control of Central Asian gas could reach 90 billion cubic meters. As Turkmenistan depends on Gazprom to distribute its gas reserves, Russia exploits this dependency and buys Turkmenistan gas for less than the market price. Russia then resells the gas to European countries for more than double the price paid to Turkmenistan. The deal is a major blow to the United States (US) and European Union (EU) as both have pitched plans to build a pipeline under the Caspian Sea.
• On May 21, 2007, the Russian government announced plans to expand on the Baltic Pipeline System. Proposed as a second trunk line, the Baltic Pipeline System-2 (BPS-2) will redirect oil exports from West Siberia and Timan-Pechora oil fields to no longer use Belarus as a transit route. The plan would utilize the port of Primorsk in the Baltic Sea and aim to maintain annual capacity of 75 million tons of oil. Russia is also upgrading the port of Primorsk that will increase uploading capacity to 150 million tons annually.
Instances of Energy Suppression
While outwardly gaining physical control of several gas pipelines, Russia has also taken steps to control the pricing related to the supply.
• The BPS-2 announcement follows a dispute between Russia and Belarus that involved a Gazprom backed plan to double gas prices and a countering Belarusian tax regime. Russia demonstrated its monopolistic influence and suspended exports to Belarus. In short time, Russia later agreed to lower prices of its exports to Belarus. Although the dispute did not cause an immediate effect on European energy supply, the move to cut supplies indicates a determined Russian policy set on utilizing a growing energy expansion for political gain.
• In January of 2006, Russia proposed a gas price increase from $50 to $230 per 1,000 cubic meters to Ukraine. As Ukraine refused the price proposal, Russia responded by cutting energy supplies that resulted in the deaths of 181 Ukrainians due to hypothermia.
Future Implications
At the recent EU-Russian summit, Russian leaders and EU commissioners strongly disagreed on a variety of issues. Specifically, the recent dispute between Russia and the Estonian government over the removal of a pro Soviet War Memorial highlights the two sides’ different viewpoints. Additionally, in a speech commemorating the 62nd anniversary of the end of the Third Reich, Russian President, Vladimir Putin, compared US foreign policies to that of the Third Reich.
A deteriorating relationship with the EU and US may give Russia an additional incentive to aggressively pursue energy deals. As future disputes occur, Russia may be tempted to use this newly acquired influence as additional leverage against opposing national interests. However, a prolonged suspension of exports to countries in Europe would severely hurt Russian trade as it earns $25 billion annually from Europe.
As Europe eyes diversification of the energy market, European countries and the US will need to quickly collaborate on improvements by building interconnecting pipelines, improving gas storage facilities and completing a European electricity grid.
If the EU and the US fail to compete with Russian energy expansion, expect Russia to regain political clout that could greatly influence future disputes in the international community.
