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In the gas pipeline game being played by Russia, the former Soviet satellite states and Europe, everyone appears set on upping the stakes this winter. Which explains why the ubiquitous Vladimir Putin, the Russian prime minister, officiated on September 6 as the Nord Stream pipeline started pumping ‘technical gas’– necessary to building pressure – in advance of pumping gas directly from Russia to its German destination; bypassing the ‘troublesome’ former Soviet states in the process.

Hardly surprising that the Russian premier should take such trouble given foreign gas sales account for around 20 percent of the state’s income. In Russia, as one writer notes: “control of the flow of hydrocarbons means raw power”. With European gas consumption expected to grow by a further 50 percent over the next decade, it is set to remain a highly lucrative market for Russia’s most important export.

But the surprisingly early opening of Nord Stream also represents the latest throw of the dice in the pipeline game.

Russian v Ukraine: Gas Wars, Part III?

Running under the Baltic past Finland, Sweden and Denmark, Nord Stream achieves two goals in just one play. It eliminates any chance of a repeat of last years’ interruption to supply for Europe, the result of on-going market skirmishes between Russia and one of the transit countries – the Ukraine. At the same time, in a country without significant energy reserves of its own, the opening of Nord Stream leaves Ukraine even more vulnerable to having its gas supplies cut off this winter.

A spat over prices and an outstanding bill has already seen the Ukrainian government threatening unspecific “consequences” if Russia’s gas prices aren’t lowered. Alyona Getmanchuk, director of Kiev’s World Policy Institute, has complained about Gazprom’s policy that ties its contract gas prices to the world oil price. Given that the impact of U.S. shale gas is keeping gas prices down, Getmanchuk wants to sever the link between world gas and oil prices, much as companies in Germany and Italy are trying to do.

The partnership of Russia’s Gazprom and Germany’s E.ON and BASF-Wintershall, anticipates that the 1,220-kilometer Nord Stream pipeline will deliver up to 55 billion cubic meters (just about 2 Tcf) of gas per year to Europe when it reaches capacity peaks in 2013. This is a sizeable chunk of the current total exports to both Eastern and Western Europe of 4.5 Tcf.

In a pre-launch television address, Putin spelled out how it would also offer Russia a freer ‘local’ hand in future negotiations, stating, “Gradually, in a calmer manner we are departing from the diktat of the transit states” – a dark allusion to dealings with the Ukraine, in particular.

Not that the Ukraine is about to repeat the mistakes of 2006 and 2009. Talks between Kiev and Moscow may be currently deadlocked, but Ukraine’s President Victor Yanukovych has already rebuffed both an offer to join the Russian-dominated Customs Union and a Gazprom-dangled carrot of an $8 billion discount on its outstanding invoice; the latter amounting to an effective buy-out of the Ukrainian national oil and gas company Naftohaz Ukrainy. Instead, Yanukovych has threatened to take Russia to “international arbitration” over the terms of its contractual agreement with Gazprom while, at the same time, resuming attempts to buy direct from gas-rich neighbour Turkmenistan, as it did in 2003.

But the plain fact is, in an energy-starved country, the Ukraine may not have a lot of choices and could well be facing yet another cold winter of discontent over gas imports from Russia. And the tangled web of Eurasian pipeline politics doesn’t stop there.

Europe, Nabucco & South Stream

While the EU will no doubt welcome its states avoiding being caught up in the spat between former Soviet allies, an online Nord Stream creates as many political problems as it solves.

Within days of the Nord Stream launch, Russia was back slamming the EU over its offer to broker talks between energy-rich Azerbaijan and Turkmenistan – which, traditionally, have not enjoyed good relations – with the aim of constructing a trans-Caspian pipeline supplying Turkmen gas to the gas-starved EU-backed southern corridor Nabucco project. A Caspian-Nabucco pipeline link-up would not only bypass Russian territory but would fulfil Europe’s strategy aimed at diversifying away its current reliance on Russian gas imports. Nabucco is thus the chief rival to the other Russian-backed southern corridor pipeline, South Stream, a direct pipeline link with southern Europe via the Black Sea. South Stream could be pumping gas before 2017 – ahead of Nabucco. Precisely why, in May 2011, a Russian Gazprom-led “charm offensive” saw all of South Stream operators, including representatives from Germany’s BASF and Italy’s ENI, wining and dining EU Energy Commissioner Günther Oettinger in Brussels.


Leaving aside the murky geopolitics that sees German and Italian companies effectively co-operating in undermining the EU-backed Nabucco project, South Stream could still fall foul of EU rules that would force Gazprom to open South Stream to independent suppliers. That’s something Gazprom would be loathe to do.

Meanwhile, there is also an intriguing sub-plot for European geopolitics. While Nord Stream diminished any immediate concerns over gas supply interruptions as a result of tensions between Russia and its former satellite states, the EU energy minister currently wants European governments to give him a mandate – to speak with “one voice”. Not only in its negotiations over the Caspian pipeline link for Nabucco, but also, its political corollary, requiring the power to block individual EU states from cutting bilateral energy deals without close scrutiny by Brussels. But a mandate effectively devolving power over national energy security matters to Brussels is likely to test the resolve of leaders in most European capitals, especially in Berlin.

A Tangled Geopolitical Web

The Russo-German “special relationship”, as I have noted elsewhere, remains the Grand Narrative underlying Eurasian pipeline politics. And that means two things. First, Russia will hold the strong regional hand for years yet. Second, Germany, for all its EU rhetoric will, as the involvement of its national companies and former leaders with Russian-backed Nord and South Stream pipelines reveals, continue to undermine the attainment of a “one voice” EU energy policy.

Moreover, these words concluding my article Turkmen Gas “Anywhere but Europe” urges Russia (ET, November 2010) may seem, in the light of recent developments, ominously prescient for Caspian geopolitics generally:

A Kremlin security document, approved by President Dmitry Medvedev and published by the Russian Security Council in May 2009, has already sanctioned the use of military force to protect Russia’s post-Soviet return to “energy superpower” status, specifically citing the Caspian as an area of potential conflict. The invasion of Georgia in 2006 – does anyone really think it was all about South Ossetia? – is powerful testimony that the Russia’s foreign policy ‘tank’ is still fuelled by oil, or gas.

Energy Tribune, 19 September 2011