The Russian energy strategy has achieved several milestones in recent months. One of the achievements we can consider an agreement between Bulgaria, Greece and Russia to construct a pipeline between the Black and Aegean Seas, which made the project of Odessa-Brody- Gdansk line less viable. Other important point was a successful round trip of the Russian President in Central Asian states and signing of two agreements concerning export of their raw materials through the Russian territory. This step made less viable the trans-Caspian oil and gas pipelines project supported by Western countries and the USA. The above mentioned development has its impacts both on the EU and on Slovakia.
There are four keystones of the Russian internal energy strategy:
– forced takeover of foreign investment projects (Yukos affair, Royal Dutch Shell, TNK-BP, recent development regarding Russneft);
– inroad into the West’s traditional supply sources in third countries;
– acquisition of infrastructure within the West itself;
– securing the access to resources in Central Asian states and pipeline monopoly on transport.
The circumstances and importance of Burgas-Alexandroupolis oil pipeline are not the main object of this article, therefore I will focus on Russian attempts to create Single Export Channel regarding gas from Central Asia and on securing a monopoly on oil exports.
On 11-13 May the energy summit of Poland, Lithuania, Ukraine, Azerbaijan, Georgia and Kazakhstan was held in Krakow, Poland. The main purpose of the meeting was a plan to agree on the construction of Odessa-Brody-Gdansk pipeline and other routes bypassing the Russian territory. They took the action because the EU is lacking a common strategy against Central Asia and they are interested in decrease of dependency on Russian supplies.
At the same time Vladimir Putin made a visit to Kazakhstan and Turkmenistan. Turkmen President Berdymukhammedov, who was invited to visit Poland in person, decided not to go and rather to meet the Russian President. This was the first bitter pill the organizers had to swallow, because all plans of the European strategists are based on Central Asian energy resources. Kazakhstan was represented only by the Deputy Minister of Energy and Mineral Resources, therefore the presence of Azeri leader helped the summit to save the face.
The most important topic discussed in Krakow was the support for construction of an oil pipeline to the Polish city of Gdansk. The source for this line is not only in Azerbaijan; as Azeri leader stressed, the project could be a profitable enterprise only if there were additional supplies of oil from Kazakhstan. First, Baku must muster 50 mil. tons (1 mil.b/d) of oil a year to BTC pipeline. For this purpose they count with Kazakh supplies as well, because the line heavily depends on these volumes.
As a counterweight to this statement, the Russian president Putin favours Caspian Pipeline Consortium (CPC), which is operating the line between Tengiz, Kazakhstan and Novorossijsk, Russia. The plan is to increase the capacity of the line from the current 23 mil. tons to 40 mil. tons of oil a year. The additional 17 mil. tons would be used to fill Bourgas-Alexandroupolis connection, where Kazakhstan is planning to buy a share. If Kazakhstan joins the project on acceptable terms, it may lose much of its interests in the Odessa-Brody pipeline. Solution offered by Mr. Putin presents Russian admittance into the project, automatically with required co-ownership. Then it can assure enough Kazakh oil to make the project profitable, but it goes against the initial purpose of the entire pipeline.
However, we need to stress that the capacity of the Odessa-Brody line is much smaller compared to existing lines connecting Central Asian states with the Russian territory. The annual capacity is 9 mil. tons; planned extension of Tengiz-Novorossijsk will increase the capacity from 27 mil. to 40 mil. tons and extended Atyrau-Samara line will be able to export up to 25 mil. tons. The participants at the meeting in Krakow expressed strong political support for the planned project. However, this was the only result of the meeting.
Initially, the project took into account that Odessa-Brody pipeline will be connected to the existing south line of Druzhba in the Ukrainian city of Brody and will run westward through the Slovak territory. Druzhba ends in Czech Republic and there is a refinery in Kralupy able to process the Kazakh oil. Another possible customer for non-Russian oil is the refinery in Schwechat, Austria, but there is still a missing connection between Slovak part of the pipeline and the refinery itself. Since 2004, there is an agreement between Slovakia and Austria to build these connections, but it hangs on environmental issues on both sides.
Last statements regarding the Odessa-Brody line do not mention the extension through Slovak territory. Besides the problem with customers for Kazakh oil, there is a problem with Slovak operator of Druzhba, Transpetrol, as well. During the privatization Russian Yukos took control over the enterprise and after the fall of the company it is still not clear who will be the new owner of the 49 % stake. The atmosphere favours Russian companies, but these see Central Asian oil in Central Europe as a competitor.
Slovak government attempts to secure our oil demand by other sources different from the Russian ones, at least verbally. But Odessa-Brody does not seem to be a priority anymore. There are rumours that Bratislava-Schwechat connection will run in both directions or that we can import oil through Czech territory from the Western oil system. Technically, these plans go against connection of Odessa-Brody to Druzhba. Slovakia can import some volumes of oil through Adria pipeline as well. These projects appear with respect to Russian intent to decrease exported volume through Druzhba pipeline and attempts to redirect it to Primorsk terminal at Baltic Sea.
The visit of the Russian President to Central Asian states made another strong blow to American and European plans to connect vast gas reserves in Kazakhstan and Turkmenistan with the trans-Caspian line to Baku, Azerbaijan. From there they could feed not only the Baku-Tbilisi-Erzurum pipeline, but Nabucco project as well.
Putin’s Central Asian tour culminated in Ashkhabat where he, together with Kazakh President Nazarbayev and Turkmen President Berdymukhammedov issued a joint statement on plans to construct a gas pipeline along the Caspian Sea and an intent to expand a gas pipeline system known as Central Asia-Center. Uzbek leader Karimov signed the statement earlier.
The intent is to restore its annual capacity to the Soviet-era level of 90 billion cubic meters at the Russian border by 2010. Next steps have tight schedules of implementation – by September 1, 2007 signing of intergovernmental agreement; corporate agreements by the year’s end and the start of construction work by mid-2008. It is already clear that Gazprom would control all phases of the process (field development, gas acquisition, pipeline construction and transit operation).
Russia already holds a near-monopoly on Turkmenistan’s existing gas exports and if the projects are realized, Kremlin will keep its position for the entire Central Asian region for the future.
The plans just announced seem to exclude the Western-backed project for the trans-Caspian pipeline to South Caucasus and Europe. Turkmen President Berdymukhammedov said that the project is not off the table and is still taken into consideration, but he listed it in the last place behind the projects like a pipeline to China and a trans-Afghan line to Pakistan and India.
These steps only confirm the opinion of many political analysts that rather than gas cartel creation, Russia will try to keep control over the resources and transit routes of Central Asian states. Russia is trying to secure its monopolistic position on exports and to set up the Single Export Channel.
Russian attempts to achieve the monopolistic position fit together with the plan to extend the Blue Stream pipeline from Turkey to Hungary, through which will be transported Central Asian gas together with the Russian one. Gazprom has already made first steps in Hungary with buying underground gas storages and preferring the country as a Central European gas distribution hub.
As a result of recent steps made by Russian administration, the likelihood of presence of non-Russian gas bypassing the Russian territory in Central Europe is marginal. Despite the huge support to Nabucco project provided by the EU.
The lack of results in Krakow is not a matter of the participating countries; it rather goes to the EU’s failure to lead on energy policy in Eurasia and Washington’s reluctance to compete with Kremlin in this particular region. The Krakow summit has confirmed that Azerbaijan, Georgia, Poland and Lithuania are more aware of the energy strategy in the Caspian basin than the top politicians in the EU and USA. Nevertheless, these countries are strictly following their national interests.
Coordination of competing energy suppliers is a key aspect of Russia’s strategy to maintain and build upon its dominant position as an energy empire vis-à-vis Europe. Despite the high stakes and a demonstrated awareness of the region’s importance from both the EU and the United States, Russia has so far managed to outmaneuver the West with its energy diplomacy in Central Asia.
Following the Putin’s successful trip, the US administration sent representatives to the region to reverse the trend. To do so, the EU and USA must make specific offers to Turkmenistan and Kazakhstan concerning prices; demonstrate to these countries that the investments for the transit projects can be lined up soon; support the leaders of these countries politically; and prevent the signing of binding intergovernmental agreement in September 2007.
http://www.jamestown.org/edm/article.php?article_id=2371827 Hartmann, J.: Energie: Kreml erhöht den Druck auf Russneft, June 21, 2007, http://www.diepresse.at/home/wirtschaft/eastconomist/312160/clanok.do
Hartmann, J.: Russland: Fiskus will hohe Nachzahlung von Ölkonzern, June 14, 2007, http://www.diepresse.at/home/wirtschaft/eastconomist/310660/clanok.do For summit details see –
http://www.thenews.pl/archives/466-Krakow-energy-summit.html Tomberg, I,: Warsaw energy summit’s bleak prospects, May 10, 2007,
http://en.rian.ru/analysis/20070510/65265679-print.html Socor, V.: Krakow Pro-Western energy summit outmaneuvered by Putin in Central Asia, EDM 94, May 14, 2007,
http://www.jamestown.org/edm/article.php?article_id=2372160 Energy communiqué signed in Krakow –
http://www.president.gov.ua/en/news/data/1_15724.html Nová trasa ropovodu medzi Bratislavou a Schwechatom, SME, June 20, 2007, http://www.sme.sk/c/3357692/Nova-trasa-ropovodu-medzi-
Bratislavou-a-Schwechatom.html  Russia’s economics ministry opts for pipeline bypassing Belarus, April 17, 2007, http://www.en.rian.ru/russia/20070417/63788351.html
Socor, V.: Russian government spelling out Baltic oil transport plans, EDM 77, April 19, 2007, http://www.jamestown.org/edm/article.php?article_id=2372109
Transneft to develop existing oil terminal bypassing Belarus, RIA Novosti, June 18, 2007, http://en.rian.ru/russia/20070618/67413865.html
Map of Primorsk terminal available here – http://www.satellite-sightseer.com/id/7829/Russian_Federation//
Elder, M.: Putin Triumphant in Turkmen Gas Deal, The St. Petersburg Times, May 15, 2007 http://www.sptimes.ru/clanok.php?action_id=2&story_id=21640
Central Asia politics: Moscow’s pipeline coup, Alexander’s Gas&Oil Connections, May 14, 2007 http://www.gasandoil.com/goc/news/ntc72457.htm Central Asia: Russian, Turkmen, Kazakh Leaders Agree On Caspian Pipeline, RFE/RL, May 12, 2007, http://www.rferl.org/featuresarticle/2007/05/09BF853D-A94B-
48BE-A3DD-937138D0B299.html  Central Asia politics: Moscow’s pipeline coup, Alexander’s Gas&Oil Connections, May 14, 2007 http://www.gasandoil.com/goc/news/ntc72457.htm
Russia, Kazakhstan, Turkmenistan agree on Caspian gas pipe, RIA Novosti, May 12, 2007, http://www.en.rian.ru/world/20070512/65373780.html