The following are my Nov. 16, 2009 remarks at the 4th Energy Forum in Budapest.
Panel 6: Russian Energy Strategy and the New Economic Realities
The financial crisis hit Russia much more than expected. How did the crisis affect major Russian energy companies and planned investments? Will Nord Stream and South Stream go ahead? Do Russian energy companies have enough capital to invest in the Central European energy industry? How long it will take for Russia to recover from the crisis?
Alexandros Petersen:
I’m afraid I’ll have to dispute to some extent the thesis of the panel topic. The topic implies that Gazprom and Russian energy strategy has suffered from the global economic downturn. Gazprom and Russian energy concerns are subject to financial crises or economic downturns to the extent that the Russian government is – because Gazprom is an arm of the Russian state – not only that, but it is a prioritized arm of the Russian state that will not be allowed to suffer the same way that other Russian businesses, or even ministries, might be allowed to suffer.
In fact, since Russia’s national security doctrine defines Russian energy resources as a major foreign policy asset, andhighlights the possibility of resource conflicts – not only the phony gas cut-offs surrounding Ukraine, but real resource wars in Eurasia as a distinct possibility, Gazprom, I would argue, is likely to suffer the least of any arm of the Russian state.
If this were not the case – as the panel topic implies, Gazprom’s major pipeline projects when it comes to the EU market: Nord Stream and South Stream, should be suffering. Yet, Nord Stream, as we have seen in flurry of activity in recent weeks, is proceeding apace. It has received approval from Denmark, Sweden and Finland and will almost certainly begin construction in the new year.
South Stream is a different story – so far it has not been a realistic or serious project. It has served mainly as a geopolitical gambit to undermine the Nabucco project and the EU’s Southern Corridor more generally. South Stream would technically be enormously difficult and at the moment, judging by the statements of Gazprom officials, would be prohibitively expensive – even in times of an economic boom or very high energy prices. The purpose of South Stream, as I see it, is to emerge as a realistic project, with far more limited scope, if Nabucco falls apart. Or, most likely, the pressure that South Stream poses on Turkey and other Nabucco partners, will eventually mean that Russian gas will become part of the Nabucco project – thus undermining its entire purpose.
So, Gazprom’s real project, Nord Stream, does not seem to have suffered due to the economic downturn, and South Stream, the phantom project, continues to serve its purpose of undermining the EU’s Southern Corridor.
Now, I would like to expand this more broadly:
Russian energy strategy:
1. is and will remain primarily geopolitical – just look at who the decision-makers are in Moscow – they think in geopolitical terms – and particularly paranoid ones at that
2. Russian energy strategy seeks to exercise as much control over European and Eurasian energy markets as possible – increased market access for international companies and market openness and transparency are seen as a threat
3. Russian energy strategy is not motivated primarily by profits – for the state or individuals – but by the Russian national security priority of control and influence of Russia’s neighbors and other great powers
So, what are the conclusions to be drawn from these observations?
1. The idea that the solution to Europe’s energy security woes is to find a way for Gazprom to operate as a “normal company” is fallacious
2. The key to understanding Russian energy moves is analysis of Russian foreign policy goals
3. The imperative of reaching and exploiting alternative energy sources – everything from Caspian and Middle Eastern gas to renewables, is paramount
4. Most importantly – it is increasingly clear that this is not just a pipeline game – the immense potential of unconventional gas resources in Europe is about to dramatically change the continent’s energy picture – as it has begun to do in the North American market – that said, I think it is entirely realistic, given the control that Russian energy concerns seek to wield inside the EU, that Gazprom and other Russian concerns will attempt to exert control over the future development of unconventional gas in Europe – the reason this has been a game-changer in North America is because the gas market is open – these new resources may not end up being a game changer in Europe because the gas market is opaque and Moscow wields inordinate influence
#1 by Simon on November 24, 2009 - 1:56 pm
As usual, your analysis is interesting and well-explained, Alexandros. I always enjoy reading your stuff.
#2 by Kazimierz on November 24, 2009 - 6:14 pm
“2. The key to understanding Russian energy moves is analysis of Russian foreign policy goals”
————
And what are Russian foreign policy goals? It would be good to know them if they are “the key”.
#3 by Robert Harneis on November 24, 2009 - 7:06 pm
It is interesting that you use the word “paranoid” in connection with Russian policy but it is not Russia that has broken up ex Yugoslavia, then attacked Serbia, Afghanistan and Iraq, on each occasion on a false pretext. In the Georgian conflict they reacted with a coolness and restraint that was unexpected and I suspect not wanted by those that stirred the war up in the first place.
Nord stream will not resolve all Russia’s problems in getting gas to Europe as it will only carry 15% of all Russian gas exports to the EU. There is no serious threat to the EU because, although they are growing, Russian gas exports will only be 40% of all EU gas imports. This whole saga is a great deal to do with those who have a serious interest in keeping the Cold War in business. For decades the Soviet Union and then Russia have exported to Europe without problem. Curiously the “problems” with Ukraine have arisen since the US candidate got elected and decided to conduct a perverse foreign policy which had more to do with pleasing his US friends than helping Ukraine to a better future. Who in their right minds thought that Russia would obligingly continue to subsidise Ukrainian gas prices once it started behaving like a US puppet but at the end of the day the Russians have to sell and we need their gas. Equally do you seriously believe that the Middle East is a better more stable option? Yes, it is a possible alternative when the US eventually permits sensible relations with Iran, which may come sooner than many expect.
On Southstream if you are right that Russian gas policy is geo-political and not normally profit driven then Southstream will go ahead despite the cost and it may be the Nabucco supporters who change camp. The Russians have actually got the money to do it unlike the US and the Europeans who are all stoney broke.
What I think the Russians really want is to be able to deal with Europe on an equal basis without constant destabilising interference from a USA that it is not at all keen for good relations to evolve across the continent. I think you underestimate how normal the Russians are. They need peace and quiet to rebuild their country. Sure they will use their influence just like any other country but they need all the money they can earn. A simple example suffices. It has just been announced that they are soon to complete the first road to cross Russia east west ever. It involves huge investment with two of the biggest bridges in the world.
#4 by Wojciech on November 26, 2009 - 3:12 pm
“There is no serious threat to the EU because, although they are growing, Russian gas exports will only be 40% of all EU gas imports. ”
EU is not a single country and it is a threat to countries in EU dependent on Russian imports which Russia will be able to isolate to pressure into obediance.
As to Ukraine’s better future-why should status of puppet state to dictatorship where journalists are murdered, opposition lands in mental wards be a better future ?
And yes, Russia doesn’t like USA-after all it provided freedom to countries Russia occupied and exploited in not so distant past.
“I think you underestimate how normal the Russians are. They need peace and quiet to rebuild their country.”
Secret service runing the country, people murdered on the streets, brutal police crackdowns on opposition.
If that’s normal, I don’t want such “normality”
#5 by Kazimierz on November 26, 2009 - 6:51 pm
@ Alexandros,
Could you respond and tell us what are Russian foreign policy goals? You claim that those goals are the key to understanding so don’t keep us in darkness.
#6 by Robert Harneis on December 6, 2009 - 2:54 pm
Wojciech – I have just seen this answer to my comment above.
“EU is not a single country and it is a threat to countries in EU dependent on Russian imports which Russia will be able to isolate to pressure into obedience.”
Yes of course but the essential point to understand is that they have to sell and they have always done so generally without problem not because they are nice but because they need the money.
“As to Ukraine’s better future-why should status of puppet state to dictatorship where journalists are murdered, opposition lands in mental wards be a better future ?”
The alternative to the present aggressively anti-Russian foreign policy is not to become a puppet state but to conduct sensible relations with its neighbour. Finalnd has done this for many years and prospered.
Let us not forget that it was actually Russia not the US that gave freedom to the satellites in the end and largely without bloodshed whatever the wider causes of which western influence was of course a major factor.
“Secret service running the country, people murdered on the streets, brutal police crackdowns on opposition.
If that’s normal, I don’t want such “normality””
Nobody asked you to live there but the fact remains that the Russians under Putin are immensely better off than under Yeltsin and it is not just thanks to energy prices. I think if you look across the Atlantic you may find that people get murdered on the streets there as well, in a country that spends an unbelievable 75billion on its secret services. That is more than France or the UK spend on their entire defence budget. You should not let yourself be mesmerised by the endless anti Russian propaganda in the western media.
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