Global Economics

Europe's Pipeline Wars


Conflict between Russia and Ukraine over supplying natural gas to Europe has reignited the battle over where to build pipelines

A grey-green carpet lies on the snow, leading to a wooden stage erected between construction trailers and bulldozers. Heavy snowflakes are falling under a gray sky. They land on the neatly parted hair of two men as they cross the carpet, walking almost in lockstep, and step onto the stage.

They have come here to this spot in the Russian taiga to celebrate a "historic event," as one them says: the launch of "one of the biggest projects of its kind in the world."

He waves to two workers in red protective suits standing below, and they switch on their welding equipment. As the sparks fly, they weld together two thick gas pipes.

Viktor Zubkov, the chairman of energy giant Gazprom since stepping down as Russian prime minister, and Alexei Miller, the company's CEO, are symbolically inaugurating a new pipeline. It will run from the city of Ukhta, where the ceremony is being held, northeast to the Yamal Peninsula in the Artic.

Ukhta is a provincial city in the autonomous republic of Komi, 350 kilometers (218 miles) from the Arctic Circle. Built by prisoners, the city was once part of the famous Gulag archipelago described by Aleksander Solzhenitsyn. The only trees that can survive the biting cold so far north are small birch trees and stunted pines.

But there are riches in the region. By 2030, up to 360 billion cubic meters of natural gas are expected to be flowing through Ukhta toward the West each year. A portion of that gas is intended for a pipeline that has become the center of a bitter dispute in Europe that now borders on a clash of cultures.

Ukhta is one of the transit points for the planned Nord Stream pipeline through the Baltic Sea. No other gas pipeline has triggered so much bitter debate as this stretch of 100,000 steel tubes which will be laid on the bottom of the Baltic Sea and through which Russian gas is expected to begin flowing to Germany in 2011.

In 2006, the then Polish Defense Minister Radek Sikorski said that the project, jointly planned by the Germans and Russians, reminded him of the pact between Hitler and Stalin, because the pipeline is deliberately being routed around Poland and the Baltic countries. Its construction poses serious risks to the environment and, therefore, to "the residents of the region," a committee within the European Parliament concluded, adding that every legal means possible must be used to prevent it from being built. For the government of the United States, the pipeline proves that Moscow "is trying to dominate the market and obstruct other transit routes."

Supporters of the Baltic Sea project use hard figures to promote their argument. Europe's natural gas requirements will have increased by one-third by 2015, they say to critics. Wells in the Netherlands and Great Britain are running dry, they argue, and Norway's reserves are insufficient to meet growing demand. The continent, in their view, must pin its hopes on Russia. The Baltic Sea pipeline, its supporters say, could cover a quarter of additional import needs, and it will eliminate dependency on the whims of transit countries.

Pipeline opponents warn that 41.5 percent of the gas consumed in Germany already comes from Russia, so that Europe's dependency on the country is rising and the continent is becoming more and more vulnerable to political extortion. Moscow's actions in the 2008 Georgian war and Russian trade sanctions against Poland merely add fuel to the fires of skeptics.

But since the beginning of the year and the conflict between Russia and Ukraine over natural gas, many questions are suddenly being raised once again.

The old dispute has been revived: Would new transport routes prevent crises like the most recent one? If so, should Germany place its bets on the Baltic Sea pipeline or on Nabucco, the competing project that crosses Turkey and Europe's southern flank? Or both?

For Russian Prime Minister Vladimir Putin, it is clear that Ukraine is solely to blame for the recent gas debacle. Situations like this, he says, can only be overcome once the Baltic Sea pipeline is in operation. Eastern Europeans, on the other hand, are calling for accelerated construction of the Nabucco pipeline.

But this is a plan that Russian President Dmitry Medvedev calls "completely unrealistic." For months now, Moscow has been pressuring Western Europe to clearly acknowledge Russia as its most reliable gas supplier.

The new front in Europe could be called Nord Stream versus Nabucco. But the conflict is about more than just two pipelines, or money. Instead, it revolves around spheres of influence and politics on a grand scale. If the Baku-Ceyhan oil pipeline, which was completed in 2005 and leads from the former Soviet republic of Azerbaijan to Turkey, via Georgia, without touching Russian territory, "was a serious annoyance for Russia," says Georgian political scientist Sosso Zinzadse, then Nabucco is "practically a reason to go to war."

A battle over two pipelines has begun, one in the north and one in the south. Both are keeping at least a dozen countries in suspense.

'The Safest and Most Modern Pipeline in the World'

Moscow's Znamenka Street leads from the building occupied by the Defense Ministry down to the Kremlin's Borovitskaya Tower. The Russian president passes through the tower's gate on his way to work in the morning. The Moscow office of Nord Stream, the company managing the Baltic Sea pipeline, is at No. 7 Znamenka Street.

Nord Stream is an international joint venture. Gazprom holds only 51 percent of the company's shares, with the remaining shares being held by the German companies Wintershall and E.on, as well as the Dutch company Gasunie. Of course, the Russians are in charge, although a German, former Chancellor Gerhard Schröder, is the chairman of the board.

Vitaly Yusufov is responsible for the gas supplier's image. He is all of 27 years old, a graduate of the elite Moscow State Institute of International Relations and the son of former Energy Minister Igor Yusufov.

According to the younger Yusufov, everything is proceeding according to plan with the Baltic Sea pipeline, which will cost an estimated €7 billion ($9.1 billion) to build. The pipeline will deliver 55 billion cubic meters of natural gas a year to Germany and, from there, to the Czech Republic, once the second of two parallel pipeline legs has been laid in the Baltic Sea in 2011-2012. The pipes have already been ordered. Europipe, a German company based in the western city of Mülheim an der Ruhr, will supply three-quarters of the pipes, while the remainder will be made in Vyksa, a Russian provincial city near Nizhny Novgorod.

Yusufov talks about the sophisticated technology with which the pipe-laying ship will lay the 12-meter (39-foot) pipe segments onto the sea floor, and about his company's efforts to satisfy even the most stringent environmental requirements. The gas, says Yusufov, will reach the German terminal near the northeastern port city of Greifswald without the need for additional compressor stations and, as a result, Nord Stream will generate almost 40 percent fewer CO2 emissions than an overland pipeline.

The Baltic Sea pipeline will be "the safest and most modern pipeline in the world," Gazprom CEO Miller insisted. It is also not intended as a replacement for any other pipeline, Putin said during a recent visit to Germany. Its sole purpose, he added, will be to pump additional gas to the West.

Even in Russia, there are those who doubt whether these arguments are truly valid. From an economic standpoint, the pipeline will "not be effective at all," because it will only be capable of handling 15 percent of Russian gas exports at most, says Alexei Khaytun, an energy expert at the Russian Academy of Sciences' Institute of Europe. Besides, he adds, the export targets are far too ambitious.

According to the St. Petersburg State Mining Institute (where Putin earned his doctorate), Russia has only 20 years' worth of viable natural gas reserves left. But domestic energy consumption is already growing at a faster rate than Russian industrial production. Because Moscow plans to sell up to 40 percent of its gas abroad in the future, the country could face economic stagnation, say experts at the Mining Institute, purely as a result of fuel shortfalls.

The Baltic Sea pipeline, says Khaytun, serves only one purpose: as a means of applying pressure to the Europeans in future price and transit negotiations.

These arguments are no deterrent for Nord Stream executive Yusufov, who refers to them as "disruptive maneuvers" by certain individuals.


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