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Putin’s Grand Gas Project

Putin’s Grand Gas Project

Sunday, 29 December, 2019 - 06:15

In the space of just a few momentous weeks, one of Russian President Vladimir Putin’s most ambitious projects — a Russian natural gas export system to match the new geopolitical reality rather than the Cold War-era one — has taken its final shape. It will probably last, without major change, until the end of Russia’s run as a top energy exporter.


The finishing touches to the project, begun in 2001 with the construction of the Blue Stream pipeline to Turkey, include the launch of the Power of Siberia pipeline to China on Dec. 2, last week’s US sanctions on the Nord Stream 2 pipeline to Germany, a new gas transit deal with Ukraine and the commissioning of the TurkStream pipeline, planned for January.


External pressure and market circumstances have helped shape the new Russian gas export system so that it can’t really be used as a sinister tool of Putin’s rogue foreign policy. Meanwhile, it’s structured in a such a way that post-Putin Russia will still be able to maintain its energy market share and use it as a basis for useful trade partnerships. That makes it a positive part of Putin’s legacy, if not entirely thanks to Putin.


Russia inherited contracts from the Soviet Union to supply natural gas to Europe, one of the biggest sources of hard currency for Russia’s reeling post-Communist economy. But the Soviet pipelines were laid across Ukraine and Belarus, which were part of the empire. But they became independent nations that demanded transit fees and low-priced energy supplies in exchange for maintaining Russia’s energy supplies to Europe, or rather, to its ex-Communist part, where Russia and everything that came from it were newly unpopular.


At the same time, gas suppliers in Central Asia and Azerbaijan presented a competitive threat: It was relatively easy for them to pipe gas to Turkey, which could deliver it further to Europe.


In the 2000s, when Putin and his advisers nurtured the notion of Russia as an “energy superpower,” it became clear to Kremlin strategists that they needed more flexibility to increase supplies and get more economic leverage over neighbors in Europe and Asia. Blue Stream, laid across the bottom of the Black Sea to the Turkish port of Samsun and opened in 2003, was the opening move of the Putin gas game.


But Blue Stream’s capacity of 16 billion cubic meters of natural gas per year was dwarfed by the roughly 180 billion cubic meters the Soviet-built pipelines could export to Europe via Ukraine and Belarus. It helped Russia compete in Turkey, but didn’t solve the bigger problem of Russia’s dependence on Ukraine and Belarus. The share of European natural gas imports that came from Russia kept falling.


In 2011, Russia obtained full control over the Belarussian gas transit system in exchange for discounted gas supplies. But Ukraine remained firmly in control of its pipelines, which accounted for the lion’s share of Russia’s export capacity.


Putin wanted more direct access to southern and western Europe. He wanted to be able to bypass Ukraine, for both economic and political reasons. The Ukrainian pipeline system, run by National JSC Naftogaz Ukraine, was falling into disrepair, and Gazprom, the Russian export monopoly for pipeline gas, feared it might have to invest in fixing it without having much influence over its operation. At the same time, Putin wanted leverage over the Ukrainian government to keep it in Moscow’s orbit. Twice in the 2000s, Russia cut off gas supplies to Ukraine to try to bring it to heel, but without alternative export routes, such tactics were unsustainable.


In 2012, Russia made another major move with the opening of Nord Stream, stretching across the bottom of the Baltic Sea to northern Germany. With a capacity of 55 billion cubic meters a year, it boosted Russia’s share of European imports. At the same time, Russia was planning a major pipeline to southern Europe, South Stream, across the Black Sea to Bulgaria. From there it would branch out to carry gas to Greece, Italy, Serbia and on to central Europe.


The 2014 Crimea annexation made it imperative for Putin to redraw the gas export map. Now, Ukraine wasn’t just an inconvenient partner, it was an adversary, and bypassing it became a geopolitical necessity for Putin. Europe, too, was more worried than ever about increasing gas exports from Russia, which could use it to expand its political influence. The European Union scuppered South Stream in late 2014 by putting pressure on Bulgaria. Plans to expand Nord Stream by laying two parallel strings of pipe, known as Nord Stream 2, also became politically toxic, especially given US resistance to that project: In Washington, fears of increased Russian leverage over Germany were compounded by the desire to supply more US liquefied natural gas to Europe.


Bloomberg


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