International Relations and Security Network (ISN)
www.isn.ethz.ch
[receives funding from the Swiss government]
July 23, 2008
Russia's strengthens clout with energy
Moscow's continued focus on energy issues indicates that decision makers there still see energy might as a key factor in the country's revival.
Commentary by Sergei Blagov in Moscow for ISN Security Watch
Sergei Blagov is a Moscow-based correspondent for ISN Security Watch.
As Russia's natural gas monopoly Gazprom intensifies its efforts to tap energy riches globally, the Kremlin appears set to rely on energy maneuverings as its key foreign policy instrument.
Furthermore, Moscow still seems to be mulling a plan to group together gas-producing nations to create a potentially anti-Western gas cartel. On 22 July, Russian President Dmitry Medvedev said the creation of an OPEC-like gas cartel remained on the agenda. Although no decision has been taken so far, "it is wrong to assume that the issue is dead," Medvedev said.
The gas OPEC plan has repeatedly surfaced in recent years, although the Kremlin has been reluctant formally endorse it, apparently fearing a negative response from European consumers. In April 2008, then-Russian president and now Prime Minister Vladimir Putin visited Libya and discussed the gas cartel idea, but refrained from any firm commitments.
In the meantime, earlier this month Gazprom moved to forge closer ties with key gas producers. On 9 July, the company offered to buy Libya's total export volume of gas, oil and liquefied natural gas at competitive prices. Gazprom expects to start purchasing Libyan resources as early the latter part of this year. Subsequently, Gazprom CEO Alexey Miller indicated interest in a project to build a new Libya-Europe pipeline. At a meeting with Libyan leader Moammar Gadhafi, Miller reportedly discussed a forum of gas exporting nations due to meet in Moscow in November.
Gazprom has also moved to expand business with Iran. On 14 July, the company announced it had signed an agreement with the National Iranian Oil Company (NIOC) for the development of Iran's oil and gas deposits. Gazprom's interest in Iranian oil and gas projects was piqued as the French oil company Total announced plans to pull out of the country earlier this month.
At a meeting on 13 July between Iranian President Mahmoud Ahmadinejad and Miller, both sides pledged to cooperate in preparations for the November forum in Moscowand advocated development of the forum as a permanent international organization, Gazprom said after the meeting.
Additionally, in recent months Moscow has been courting Caspian gas suppliers by offering them increasingly better terms. In March, Russia agreed to raise gas prices for Turkmenistan, Kazakhstan and Uzbekistan up to European levels from 2009 onward.
Moscow apparently aims to secure the rights to ship natural gas from the Caspian nations. Russia's offer to pay Central Asian producers European rates would put an end to their attempt to supply energy resources on their own by circumventing Russia, Medvedev's aide Sergei Prikhodko said on 3 July.
Russia's top officials have been touring Caspian capitals, aiming to secure long-term gas deals. Earlier this month, Medvedev traveled to Turkmenistan and Azerbaijan and to discuss energy issues, even offering to purchase Azerbaijan's gas at market prices. A proposed project, the Pricaspiysky gas pipeline, was also discussed.
In December 2007, Russia, Kazakhstan and Turkmenistan signed an agreement to build the Pricaspiysky pipeline system to funnel 20 billion cubic meters (bcm) of Central Asian natural gas per annum along the Caspian shore to Russia. Construction is scheduled to start later this year.
The project is thought to come as a response to the US-backed Trans-Caspian underwater gas pipeline, which would bypass the Russian pipeline network by linking Kazakhstan and Turkmenistan directly to the West via Azerbaijan. Moscow indicated a willingness to pay more for Caspian and Central Asian energy resources, presumably aiming to undermine the competing project.
Therefore, Gazprom's renewed efforts to tap Caspian energy resources is understood to be aimed not only at undermining the US-backed alternative gas pipeline, but also designed to support Gazprom's global ambitions. Moves by Gazprom to boost ties with Iran and Libya are seen as detrimental to US efforts to limit Russia's growing energy clout, thus curbing its international influence.
Gazprom also made little secret that its generous offers to Central Asian and other gas producers would be underwritten by European consumers and warned about upcoming price hikes. Earlier this month, Miller said that Europe would have to pay US$500 per thousand cubic meters (tcm) of gas by year end with the price eventually reaching US$1,000/tcm.
Not surprisingly, even Russian officials concede that the country's gas monopoly is emerging as a formidable energy player, thus inspiring wariness in European capitals. According to a remark made by Russia's envoy to the EU Vladimir Chizhov on 11 July, The EU nations no longer fear Russian tanks, but they do fear Gazprom.
However, it remains to be seen whether Gazprom's maneuverings could serve to give Russia's international clout a much-needed boost. Gazprom's preference of cartel-like policies and incessant increases of its gas prices may eventually face resistance by European consumers.