Wednesday, December 3, 2014
by Alexander Mercouris
The reaction to the cancellation of the Sound Stream project has been a
wonder to behold and needs to be explained very carefully.
In
order to understand what has happened it is first necessary to go back
to the way Russian-European relations were developing in the 1990s.
Briefly, at that period, the assumption was that Russia would become
the great supplier of energy and raw materials to Europe. This was the
period of Europe's great “rush for gas” as the Europeans looked forward
to unlimited and unending Russian supplies. It was the increase in the
role of Russian gas in the European energy mix which made it possible
for Europe to run down its coal industry and cut its carbon emissions
and bully and lecture everyone else to do the same.
However the
Europeans did not envisage that Russia would just supply them with
energy. Rather they always supposed this energy would be extracted for
them in Russia by Western energy companies. This after all is the
pattern in most of the developing world. The EU calls this “energy
security” - a euphemism for the extraction of energy in other countries
by its own companies under its own control.
It never happened
that way. Though the Russian oil industry was privatised it mostly
remained in Russian hands. After Putin came to power in 2000 the trend
towards privatisation in the oil industry was reversed. One of the major
reasons for western anger at the arrest of Khodorkovsky and the closure
of Yukos and the transfer of its assets to the state oil company
Rosneft was precisely because is reversed this trend of privatisation in
the oil industry.
In the gas industry the process of
privatisation never really got started. Gas export continued to be
controlled by Gazprom, maintaining its position as a state owned
monopoly gas exporter. Since Putin came to power Gazprom’s position as a
state owned Russian monopoly has been made fully secure.
Much
of the anger that exists in the west towards Putin can be explained by
European and western resentment at his refusal and that of the Russian
government to the break up of Russia's energy monopolies and to the
“opening up” (as it is euphemistically called) of the Russian energy
industry to the advantage of western companies. Many of the allegations
of corruption that are routinely made against Putin personally are
intended to insinuate that he opposes the “opening up” of the Russian
energy industry and the break up and privatisation of Gazprom and
Rosneft because he has a personal stake in them (in the case of Gazprom,
that he is actually its owner). If one examines in detail the specific
allegations of corruption made against Putin (as I have done) this
quickly becomes obvious.
His agenda of forcing Russia to
privatise and break up its energy monopolies has never gone away. This
is why Gazprom, despite the vital and reliable service it provides to
its European customers, comes in for so much criticism. When Europeans
complain about Europe's energy dependence upon Russia, they express
their resentment at having to buy gas from a single Russian state owned
company (Gazprom) as opposed to their own western companies operating in
Russia.
This resentment exists simultaneously with a belief,
very entrenched in Europe, that Russia is somehow dependent upon Europe
as a customer for its gas and as a supplier of finance and technology.
This combination of resentment and overconfidence is what lies behind
the repeated European attempts to legislate in Europe on energy
questions in a way that is intended to force Russia to “open up” its the
energy industry there.
The first attempt was the so-called
Energy Charter, which Russia signed but ultimately refused to ratify.
The latest attempt is the EU's so-called Third Energy Package.
This is presented as a development of EU anti-competition and
anti-monopoly law. In reality, as everyone knows, it is targeted at
Gazprom, which is a monopoly, though obviously not a European one.
This is the background to the conflict over South Stream. The EU
authorities have insisted that South Stream must comply with the Third
Energy Package even though the Third Energy Package came into existence
only after the outline agreements for South Stream had been already
reached.
Compliance with the Third Energy Package would have
meant that though Gazprom supplied the gas it could not own or control
the pipeline through which gas was supplied.
Were Gazprom to
agree to this, it would acknowledge the EU’s authority over its
operations. It would in that case undoubtedly face down the line more
demands for more changes to its operating methods. Ultimately this would
lead to demands for changes in the structure of the energy industry in
Russia itself.
What has just happened is that the Russians have
said no. Rather than proceed with the project by submitting to European
demands, which is what the Europeans expected, the Russians have to
everyone’s astonishment instead pulled out of the whole project.
This decision was completely unexpected. As I write this, the air is of
full of angry complaints from south-eastern Europe that they were not
consulted or informed of this decision in advance. Several politicians
in south-eastern Europe (Bulgaria especially) are desperately clinging
to the idea that the Russian announcement is a bluff (it isn’t) and that
the project can still be saved. Since the Europeans cling to the belief
that the Russians have no alternative to them as a customer, they were
unable to anticipate and cannot now explain this decision.
Here
it is important to explain why South Stream is important to the
countries of south-eastern Europe and to the European economy as a
whole.
All the south eastern European economies are in bad
shape. For these countries South Stream was a vital investment and
infrastructure project, securing their energy future. Moreover the
transit fees that it promised would have been a major foreign currency
earner.
For the EU, the essential point is that it depends on
Russian gas. There has been a vast amount of talk in Europe about
seeking alternative supplies. Progress in that direction had been to put
it mildly small. Quite simply alternative supplies do not exist in
anything like the quantity needed to replace the gas Europe gets from
Russia.
There has been some brave talk of supplies of US
liquefied natural gas replacing gas supplied by pipeline from Russia.
Not only is such US gas inherently more expensive than Russian pipeline
gas, hitting European consumers hard and hurting European
competitiveness. It is unlikely to be available in anything like the
necessary quantity. Quite apart from the probable dampening effects of
the recent oil price fall on the US shale industry, on past record the
US as a voracious consumer of energy will consume most or all of the
energy from shales it produces. It is unlikely to be in a position to
export much to Europe. The facilities to do this anyway do not exist,
and are unlikely to exist for some time if ever.
Other possible
sources of gas are problematic to say the least. Production of North
Sea gas is falling. Imports of gas from north Africa and the Arabian
Gulf are unlikely to be available in anything like the necessary
quantity. Gas from Iran is not available for political reasons. Whilst
that might eventually change, the probability is when it does that the
Iranians (like the Russians) will decide to direct their energy flow
eastwards, towards India and China, rather than to Europe.
For
obvious reasons of geography Russia is the logical and most economic
source of Europe’s gas. All alternatives come with economic and
political costs that make them in the end unattractive.
The
EU's difficulties in finding alternative sources of gas were cruelly
exposed by the debacle of the so-called another Nabucco pipeline project
to bring Europe gas from the Caucasus and Central Asia. Though talked
about for years in the end it never got off the ground because it never
made economic sense.
Meanwhile, whilst Europe talks about diversifying its supplies, it is Russia which is actually cutting the deals.
Russia has sealed a key deal with Iran to swap Iranian oil for Russian
industrial goods. Russia has also agreed to invest heavily in the
Iranian nuclear industry. If and when sanctions on Iran are lifted the
Europeans will find the Russians already there. Russia has just agreed a
massive deal to supply gas to Turkey (about which more below).
Overshadowing these deals are the two huge deals Russia has made this
year to supply gas to China.
Russia's energy resources are
enormous but they are not infinite. The second deal done with China and
the deal just done with Turkey redirect to these two countries gas that
had previously been earmarked for Europe. The gas volumes involved in
the Turkish deal almost exactly match those previously intended for
South Stream. The Turkish deal replaces South Stream.
These
deals show that Russia had made a strategic decision this year to
redirect its energy flow away from Europe. Though it will take time for
the full effect to become clear, the consequences of that for Europe are
grim. Europe is looking at a serious energy shortfall, which it will
only be able to make up by buying energy at a much higher price.
These Russian deals with China and Turkey have been criticised or even
ridiculed for providing Russia with a lower price for its gas than that
paid by Europe.
The actual difference in price is not as great
as some allege. Such criticism anyway overlooks the fact that price is
only one part in a business relationship.
By redirecting gas to
China, Russia cements economic links with the country that it now
considers its key strategic ally and which has (or which soon will have)
the world’s biggest and fastest growing economy. By redirecting gas to
Turkey, Russia consolidates a burgeoning relationship with Turkey of
which it is now the biggest trading partner.
Turkey is a key
potential ally for Russia, consolidating Russia's position in the
Caucasus and the Black Sea. It is also a country of 76 million people
with a $1.5 trillion rapidly growing economy, which over the last two
decades has become increasingly alienated and distanced from the EU and
the West.
By redirecting gas away from Europe, Russia by
contrast leaves behind a market for its gas which is economically
stagnant and which (as the events of this year have shown) is
irremediably hostile. No one should be surprised that Russia has given
up on a relationship from which it gets from its erstwhile partner an
endless stream of threats and abuse, combined with moralising lectures,
political meddling and now sanctions. No relationship, business or
otherwise, can work that way and the one between Russia and Europe is no
exception.
I have said nothing about the Ukraine since in my opinion this has little bearing on this issue.
South Stream was first conceived because of the Ukraine's continuous
abuse of its position as a transit state - something which is likely to
continue. It is important to say that this fact was acknowledged in
Europe as much as in Russia. It was because the Ukraine perennially
abuses its position as a transit state that the South Stream project had
the grudging formal endorsement of the EU. Basically, the EU needs to
circumvent the Ukraine to secure its energy supplies every bit as much
as Russia wanted a route around the Ukraine to avoid it.
The
Ukraine’s friends in Washington and Brussels have never been happy about
this, and have constantly lobbied against South Stream.
The
point is it was Russia which pulled the plug on South Stream when it had
the option of going ahead with it by accepting the Europeans’
conditions. In other words the Russians consider the problems posed by
the Ukraine as a transit state to be a lesser evil than the conditions
the EU was attaching to South Stream .
South Stream would take
years to build and its cancellation therefore has no bearing on the
current Ukrainian crisis. The Russians decided they could afford to
cancel it is because they have decided Russia’s future is in selling its
energy to China and Turkey and other states in Asia (more gas deals are
pending with Korea and Japan and possibly also with Pakistan and India)
than to Europe. Given that this is so, for Russia South Stream has lost
its point. That is why in their characteristically direct way, rather
than accept the Europeans’ conditions, the Russians pulled the plug on
it.
In doing so the Russians have called the Europeans’ bluff. So far from
Russia being dependent on Europe as its energy customer, it is Europe
which has antagonised, probably irreparably, its key economic partner
and energy supplier.
Before finishing I would however first say
something about those who have come out worst of all from this affair.
These are the corrupt and incompetent political pygmies who pretend to
be the government of Bulgaria. Had these people had a modicum of dignity
and self respect they would have told the EU Commission when it brought
up the Third Energy Package to take a running jump. If Bulgaria had
made clear its intention to press ahead with the South Stream project,
there is no doubt it would have been built. There would of course have
been an almighty row within the EU as Bulgaria openly flouted the Third
Energy Package, but Bulgaria would have been acting in its national
interests and would have had within the EU no shortage of friends. In
the end it would have won through.
Instead, under pressure from
individuals like Senator John McCain, the Bulgarian leadership behaved
like the provincial politicians they are, and tried to run at the same
time with both the EU hare and the Russian hounds. The result of this
imbecile policy is to offend Russia, Bulgaria's historic ally, whilst
ensuring that the Russian gas which might have flown to Bulgaria and
transformed the country, will instead flow to Turkey, Bulgaria's
historic enemy.
The Bulgarians are not the only ones to have
acted in this craven fashion. All the EU countries, even those with
historic ties to Russia, have supported the EU's various sanctions
packages against Russia notwithstanding the doubts they have expressed
about the policy. Last year Greece, another country with strong ties to
Russia, pulled out of a deal to sell its natural gas company to Gazprom
because the EU disapproved of it, even though it was Gazprom that
offered the best price.
This points to a larger moral. Whenever
the Russians act in the way they have just done, the Europeans respond
bafflement and anger, of which there is plenty around at the moment. The
EU politicians who make the decisions that provoke these Russian
actions seem to have this strange assumption that whilst it is fine for
the EU to sanction Russia as much as it wishes, Russia will never do the
same to the EU. When Russia does, there is astonishment, accompanied
always by a flood of mendacious commentary about how Russia is behaving
“aggressively” or “contrary to its interests” or has “suffered a
defeat”. None of this is true as the rage and recriminations currently
sweeping through the EU’s corridors (of which I am well informed) bear
witness.
In July the EU sought to cripple Russia’s oil industry
by sanctioning the export of oil drilling technology to Russia. That
attempt will certainly fail as Russia and the countries it trades with
(including China and South Korea) are certainly capable of producing
this technology themselves.
By contrast through the deals it
has made this year with China, Turkey and Iran, Russia has dealt a
devastating blow to the energy future of the EU. A few years down the
line Europeans will start to discover that moralising and bluff comes
with a price. Regardless, by cancelling South Stream, Russia has imposed
upon Europe the most effective of the sanctions we have seen this year.
http://vineyardsaker.blogspot.ca/2014/12/the-importance-of-cancellation-of-south.html
The Saker Blog now in Italian
TO ALL THE SAKER FRIENDS IN ITALY!ora potete anche visitare il Blog Italiano VineyardSaker cliccando su questo link:
http://www.vineyardsaker.it/
No comments:
Post a Comment