Russian Pipeline Development, International Deals Point to Resurgent Role

Posted in Russia , Energy Security , Other | 16-Oct-08 | Author: Ioannis Michaletos| Source: Balkanalysis.com

An oil pipeline being laid down.

Energy issues related to the rapid increase of Russia’s prominence on the global political stage, greatly assisted through the country’s use of its energy riches, have captured considerable attention from world policymakers. Russian is the major supplier of natural gas to Europe, providing an estimated 50 percent of gas consumed in the EU. Moscow’s major strategy here is to increase this dependency, while at the same time to develop closer ties with Asian powers such as China, so as to counterbalance any potential retaliation by Europe in case relations between them deteriorate in the future.

After the five-day war in Georgia in August, there were numerous calls for breaking or sharply limiting ties between Brussels and Moscow, mostly echoing the American neoconservative strategy that seems determined to pursue a renewed Cold War, conditions permitting. In order to fully examine the situation at hand, one should present Russia’s strategy, which has been indicated in several ways intimating the country’s future intentions.

Over the past few years, Russia has gives its utmost attention to completing a series of infrastructure projects in the Eurasian region. One is the Burgas-Alexandroupoli (B-A) oil pipeline from Bulgaria to Greece, allowing oil sent via ship on the Black Sea to bypass the crowded Bosporus. Another, the South Stream gas pipeline, partially seeks to bypass Ukraine, which has drifted towards NATO since the “Orange Revolution” in late 2004. Similarly, the North Stream gas pipeline, meant to bypass another former Soviet neighbor now oriented against it, Poland, will allow Russia to supply Germany and Western Europe in general with 55 billion cubic meters of gas.

At the same time, Russia has engaged domestically in the modernization of its own pipeline infrastructure. It has also started upgrading the oil terminal of its Arctic Murmansk port, and has found additional gas deposits on Russian-owned territory. The Caspian pipeline system will be used in order to secure imports of oil from Central Asian states; a great percentage of those will be used to supply the B-A pipeline.

The region surrounding the Caspian is one of the focal areas in Eurasia, mainly because of its immense energy potential. Presently, Kazakhstan exports over 1 million barrels of oil via the Caspian Pipeline Consortium pipeline (CPC), while Azerbaijan manages to export 800,000 barrels from the BTC pipeline, a number that will increase up to 50 percent over the coming years.

The CPC pipeline has a total length of 1,510 km and transfers hydrocarbons from the gigantic Tengiz oil field up to the Novorossiysk Russian port on the Black Sea. It is estimated that by 2010 over 1.3 million barrels could be thus transferred on a daily basis. The projects are however facing several issues, the most interesting being the absence of a conclusive agreement between neighboring countries regarding sovereignty issues in the Caspian Sea- a chronic headache that has slowed development.

This is an issue of great importance. A country like Azerbaijan produces over 80 percent of its oil offshore, and up to 60 miles from the coastline. Iran claims it has the right to exploit some 20 percent of the total Caspian surface area (143.244 sq km), whereas Russia, Kazakhstan and Azerbaijan argue jointly that the Iranian percentage should actually be 13 percent, maximum.

For the moment, the strongest partner in this region is Russia, since it effectively controls the pipeline networks and the export revenues of Kazakhstan, while the two main Russian rivers, the Volga and the Don, are interconnected via a channel. In essence, Moscow provides the Caspian states the capability to connect to the Black Sea and the North Sea through its own territory.

The Western Siberian pipeline is another key route. The completion of the Western Siberian oil pipeline will supply the Asian market and, from a geo-economic point of view, will ultimately lead to a decrease in the significance of the Singapore Straits, from where the bulk of Middle Eastern oil currently passes on its way to China and Japan.

On March 21, 2006, the first strategic agreement was implemented for the exportation of Russian natural gas to China. The Gazprom- CNPC (China National Oil Corporation) agreement anticipates a yearly exportation of some 40 billion cubic meters of natural gas to China from the Western Siberian Pipeline, starting in 2011.The pipeline to be constructed has a total length of 3,000 km, and is estimated to cost over $10 billion. There is still no specific information regarding how the total cost is going to be shared by the involved parties, since other technicalities remain unsolved. However, this is clearly a major deal that harmonizes the Chinese need for more energy and the Russian need to expand and diversify its export base, for both economic and geopolitical reasons.

The aforementioned projects will cost, according to unofficial estimations, from $70 billion to $100 billion. This is small change, if one takes into account that the revenues from oil alone for 2007 were approximately 180 billion Euros, and before the price hike that saw the oil index go from $75 to $147 per barrel during the first quarter of 2008.

Currently, however, due to the global financial crisis, the price of oil has decreased to $87 per barrel. Nevertheless, the value of the dollar has risen by 15 percent in less than three weeks, so the fall is less than would seem.

Russia, should it completes the above projects, would be able to alter to its advantage one of the strongest points of the so-called maritime powers (i.e. USA), and that is the control of vital geo-economic points such as maritime straits or ‘sensitively-placed’ countries. Such impediments can simply be bypassed by the main energy corridors that will flow through Russia on the Eurasian terrain.

Furthermore, Moscow has also been able to exercise strong influence in the energy industries of the other CIS states with its abundance of natural resources. Tajikistan, Kazakhstan and Turkmenistan have strategic partnerships with the likes of Lukoil and Gazprom, and great portions of their hydrocarbons are being transferred to the West over Russian soil and via Russian pipelines.

Moreover there are several relevant energy projects underway in Russia’s near-abroad. Kazakhstan is promoting a multibillion program by 2020 to modernize its oil industry. The country aims to achieve the status of an energy supplier for the Azerbaijan-Georgia-Turkey Baku-Ceyhan pipeline and to invest in Georgia itself as well. Turkmenistan has similar plans, that include mostly investing in identifying and exploiting new reservoirs of oil and natural gas by 2020. And the Russian corporation Lukoil plans to invest $5 billion in an oil project in Uzbekistan, while Gazprom has formed a strategic partnership agreement with Tajikistan. At the same time, Russia has moved to enhance its influence through the media in such states by increasing its television presence in Central Asia.

Despite the degree of unpredictability that the current global financial crisis is having for all the major players, these simultaneous events and developments indicate that Russia’s economic and political resurgence, driven by its wealth of natural resources, can only be expanded, in parallel with its pipeline network- meaning the country will remain a force to be reckoned with for America and Europe in a variety of spheres.

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Frequent Balkanalysis.com contributor Ioannis Michaletos is a Balkan security analyst for the RIEAS Institute in Athens, Greece. He is also Southeastern European Coordinator and Editor for the World Security Network Foundation.

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