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Is Moscow bluffing on redirecting European gas supplies?

Moscow says it's planning to build a pipeline to the Turkish-Greek border and no longer ship natural gas to Western Europe through Ukraine within 3 years. The project is far more about political competition than economics.

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    Gas pipes bearing the Russian flag, pre-positioned in Serbia before the South Stream pipeline project was cancelled last December.
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Russia has announced that it will stop supplying Europe directly with natural gas via pipelines that transit through Ukraine within three years, Russian news agencies reported last week.

The move threatens the European Union's energy security and may force Europeans to move quickly to wean the continent from its long-standing dependence on Russian gas.

Russia says it will use a newly-announced pipeline through Turkey to bypass Ukraine and channel about 60 billion cubic meters of gas -- about 40 percent of all Russian exports to Europe -- to a new gas hub on the Greek-Turkish border. Europe will be required to make its own arrangements, including building new pipelines, to collect and distribute the gas.

To be sure, a full agreement has not been reached with Turkey, nor has construction begun on what will be an expensive, multi-year project.

According to Bloomberg, European energy officials were blindsided by the Russian announcement.

"We don’t work like this," the agency quoted Maros Sefcovic, the European Commission’s vice president for energy union, as saying. "The trading system and trading habits -- how we do it today -- are different." The Russian decision "makes no economic sense," Mr. Sefcovic insisted.

But experts say Russia's pipeline strategy for Europe over the past decade has been politically-motivated, designed not to sell more gas or deliver it more efficiently, but to circumvent the Soviet-era Friendship pipeline system that hitherto carried the bulk of Russian oil and gas exports through Ukraine to Europe.

Russia has regarded Ukraine as an unreliable transit partner since the Orange Revolution in 2004, and repeatedly tussled with Ukrainian governments over the terms of delivery. On two occasions, in 2006 and 2009, such Moscow-Kiev gas wars led to shutdowns that left downstream customers in Europe shivering.

In 2011 Russia achieved half its strategic objective by inaugurating the Nord Stream pipeline under the Baltic Sea, which delivers gas directly to Moscow's most important customer, Germany.

But a $45 billion southern leg, known as South Stream, designed to do the same for customers in central and southern Europe, ran afoul of escalating political tensions over Ukraine last year. When the European Commission convinced Bulgaria to suspend its participation in South Stream, Russian President Vladimir Putin reacted by cancelling the entire project last month.

The cancellation of South Stream widened political rifts within Europe, especially among those countries that had been hoping to benefit from a huge pipeline that would bring Russian gas directly to them.

Russia's announcement last week that it will now deliver all its gas to a "hub" on Turkey's border with Europe has set up more controversy, with the European Union denouncing the move, but countries that stand to benefit, like Greece, applauding it.

Some pro-Moscow commentators argue that Mr. Putin's moves have been fast-footed and brilliant, confounding his European detractors and strengthening Russia's bargaining position with the EU.

But Mikhail Krutikhin, a partner with RusEnergy, a leading Moscow-based energy consultancy, says Kremlin policies are incoherent reactions to Europe's unexpected internal solidarity over maintaining sanctions against Russia for its Ukraine policies.

"This Turkey project is not a project at all, it's really just an idea. It's not even clear whether Turkey supports it, since there's been nothing signed except one vague memorandum of understanding," he says.

"It really looks like the Kremlin is just trying to blackmail Europe, but it's risking the loss of its biggest market in doing so. We're talking about 60 billion cubic meters of gas annually, which Russia has no alternative markets for, at a time when Europe is well on the way to developing its own energy independence. It smacks of desperation, not brilliance, to me."

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