Jamestown Foundation
www.Jamestown.org
Eurasia Daily Monitor
Volume 3, Number 15
January 23, 2006
RUSSIA STRUGGLES WITH COLD AND SHIVERS FROM ENERGY INSECURITY
By Pavel K. Baev
For a second week Russia has been making international news even though its political life remains close to hibernation. Arctic air has spread over its vast territory, bringing bitterly cold temperatures that most cities have not seen for the last 25 years. Moscow, with daytime temperatures close to -300C, was some ten degrees warmer than Ekaterinburg in the Urals and Novosibirsk in South-Western Siberia; yet several past winters were quite mild in the capital, so the "ice age" has caught Muscovites by surprise. Residents in the capital have been by and large taking this anomaly stoically, trading jokes about discovering the sense in staying overnight in the office and setting on fire the organizations campaigning against global warming (Moskovskii komsomolets, January 19). There are, nevertheless, growing worries about the ability of the city of 10 million to keep house warm and industries running, particularly as the weather will worsen after a brief respite this past weekend (Kommersant, January 21).
Every year, President Putin's "era of normalcy and stability" is marked by a spectacular disaster in Moscow, from the fire in the Ostankino TV tower in summer 2000 to the fire in Manezh on the night of his re-election in March 2004. It is the large-scale blackout in late May 2005 that is the source of most concerns nowadays, as it has revealed the critical vulnerability of Moscow's electricity grids (EDM, May 27). While the temperature in Moscow has not reached a record low, the consumption of energy has jumped to an all-time high: 16,200 Megawatts were registered in use on Friday (Newsru.com, January 21). Despite the colossal demand, only a few minor accidents with heating systems have happened so far, and Moscow Mayor Yuri Luzhkov expressed great satisfaction with the performance of city services while placing blame for the high risk of power failure squarely on the shoulders of Anatoly Chubais, chief of the United Energy Grid Company (Lenta.ru, January 21).
Chubais is certainly a disliked by millions of Russians for his key role in the massive privatization of state property in the early 1990s. Last December, he created an outrage in Moscow with a statement on the necessity of electricity switch-offs if the temperature drops below -250C for more than three days. The statement was called a "provocation" aimed at compromising the mayor on the eve of elections to the city council¬the situation was generally perceived as entirely hypothetical (Ezhednevny zhurnal, January 20). As it turns out, Chubais outlined an emergency plan that has indeed been implemented by cutting electricity to some enterprises, shops and kiosks (the total scale of switch-offs was not more than 440 Megawatts). Yet, on the whole, the calculations of the peak demand and maximum possible supply in this plan have so far proven correct; while Moscow's electric system has so far been stable, other elements of energy security appear to be less reliable (Gazeta.ru, January 20).
Considering total reserves and the available resources, the natural gas sector should logically be the main source of stability, as it would cover emergency demand by flexible delivery of additional volumes. In fact, however, the capability of this sector is quite limited. GAZPROM announced at its website (www.gazprom.ru) that it had increased supply to Russian customers by pumping gas from its storages, but the stream of news from many Russian regions has been about switching to other sources of energy, like coal and black oil (Lenta.ru, January 19). Even St. Petersburg had to request the emergency delivery of black oil from strategic reserves (Vremya novostei, January 20). European consumers of Russian gas, primarily Italy but also Hungary and Croatia, have experienced a 20 percent cut in deliveries, which remains within limits stipulated in their contracts with GAZPROM, at the time when their demand has been rising (Nezavisimaya gazeta January 20).
This crucial insecurity in energy supply is caused primarily by GAZPROM's reluctance to invest in modernization and even proper maintenance of its vast system of pipelines and basic infrastructure of production. The explosion on the strategic pipeline supplying Georgia and Armenia in the early hours of Sunday was caused, according to preliminary reports, by "technical reasons," and is just the most recent evidence of the vulnerability of decaying infrastructure (Newsru.com, January 22). This astonishing neglect of its core business by the giant monopoly, which last autumn paid USD $13 billion for oil company Sibneft and has started to construct the USD $2 billion pipeline under the Baltic Sea, might appear inexplicable. Indeed, despite the fact that GAZPROM sits on a quarter of the world's reserves of natural gas in a period of favorable market conditions, the company was unable to increase its production last year and will not achieve any growth this year. Part of the explanation may be the legendary inefficiency of this bureaucratized behemoth of a company that is now able to boost its profits by simply enforcing sharp price increases on its foreign customers. The Russian stock market, which has grown by an astonishing 19 percent in the last two trading weeks¬setting historic records¬appears to have rewarded this behavior (Kommersant, January 21).
Another and likely explanation is the intersection of business and politics in Russia that GAZPROM has come to symbolize. The aim of Putin's politics is to maximize the returns on Russia's energy exports and build a position of strength that will allow him to dismiss off-hand any criticism of his determined "retreat from democracy." In essence, this is a policy of inciting energy insecurity rather than providing guaranteed supply for uneven yet growing demand. That is why Alexei Miller, GAZPROM's CEO, is so focused on new projects in Uzbekistan and framework agreements with Kazakhstan and Turkmenistan that would grant Russia exclusive rights for purchase of Central Asian gas, thus denying any alternative sources of supply to Ukraine, Georgia and any other politically sensitive customers (Kommersant, January 19).
Cold weather has given Europe a second warning¬after the New Year "gas war" with Ukraine¬of Russia's short-sighted and inevitably self-defeating mix of monopolistic business and egoistic politics.