Nord Stream Project The Strategic Importance to Russia and the EU Conference: Nord Stream Project: t

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Nord Stream Project The Strategic Importance to
Russia and the EU Conference Nord Stream
Project the Economical, Political, Löegal and
Ecological Implications for the Baltic Sea
RegionVilnius, 12 February, 2007

• Dr. Frank Umbach
• Research Institute of the
• German Council on Foreign Relations (DGAP),
  Berlin
• E-Mail umbach_at_dgap.org
• Web-Seite www.dgap.org

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We will increasingly compete with others for
energy. The scramble for territory of the past
maybe replaced by a scramble for energy. We have
to take our energy where we find it. Although
energy markets are increasingly global, much of
the worlds gas and oil reserves lie in unstable
and often undemocratic parts of the world. We
may have to deal increasingly with governments
whose interests are different from our own and
who do not necessarily share our values. Sitting
on huge reserves of oil and gas gives some
difficult regimes a trump card. They can use
energy revenues for purposes which we may find
problematic. And it shields them from external
pressure. Thus, our energy needs may well limit
our ability to push wider foreign policy
objectives, not least in the area of conflict
resolution, human rights and good governance.
(Javier Solana, Towards an EU External Energy
Policy, Address at the EU Energy Conference,
S324/06Brussels, 20 November 2006)
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Introduction I

• Contract Signed on September 8, 2005
• contract signed for the construction of the North
  European Gas Pipeline (NEPG) in the presence of
  Vladimir Putin and Gerhard Schroeder
• Contract between Gazprom and the German BASF and
  E.ON companies (Gazprom ownes 51 German
  BASF/Wintershall and E.ON Ruhrgas will take 24,5
  each any new partner will take shares only from
  the German side!)
• Subsea Gas Pipeline
• running across the Baltic Sea (starting in in
  the Portovaya Bay near Vyborg with a length nof
  1189 km to Greifswald) bringing Russian gas
  directly to Germany, while bypassing the EE
  countries
• Gas production rate for first pipeline 27.5 bcm
  per year with second string up to 55 bcm
• Official Costs for subsea section 4 bn (5.7 bn
  )
• Planned to Start Operation in 2010
• Justified by Russian experts as a real
  breakthrough into Europe not only in the
  energetic but also in the political sphere
• Harsh criticism in Poland, to some extent also in
  the Baltic states and increasingly also in
  Sweden

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Introduction II

• Global Dimensions
• Global demand
• Shift of the global power balance between
  consumer and producer states emerging of a
  global sellers market
• Renationalization trends worldwide
• Russian Energy Policies
• Russian-Ukrainian conflict of January 2006
• Russian perception of that conflict and the
  implications for its relations with the EU
• Unreliable energy partner lessons not learned!
• ECT and Transit Protocol not ratified
• No or limited access to Russian energy market for
  foreign companies
• Renationalization trends pre-condition for
  FP/SP
• Russian energy policies and resources used as the
  main foreign policy instrument by the Kremlin and
  the siloviki

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Introduction III

• Russian-Ukrainian Gas Conflict has Demystified
  Several Long-Standing Assumptions Underlying
  German Energy Policy and Foreign Policy
• oil and gas are exclusively economic goods, not
  strategic ones. According to this view, energy
  resources are not part of the foreign and
  security policy strategy of other countries, and
  the energy policies of other countries strictly
  adhere to the rules of market economics, as in
  Germany and Europe.
• the security of the energy supply is, hence, no
  longer an important factor and can be left to
  private utility companies.
• disruptions in regional or global energy supply
  can be offset by other oil and gas imports at any
  time.
• Russia under President Putin has steadily
  strengthened its market orientation.
• Never having used energy exports as a political
  weapon even during the cold war, Russia will
  always prove to be a reliable energy partner for
  Europe.
• Russias need to export its oil and gas to the
  European market has led to mutual dependence that
  precludes the instrumentalization of Russian
  energy and pipeline policy as a factor of foreign
  policy in the age of globalization.

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Polish and Baltic Criticism

• Current projects seem to favour Poland as the
  preferred route for building a new EU-Russia oil
  pipeline
• Hardly surprising, Poland and Baltic states have
  heavily criticised the new agreement between
  Germany and Russia to build a 1,200 km gas
  pipeline directly linking them under the Baltic
  Sea by 2010
• Criticism
• Perception of a political alliancew between
  Germany and Russa at the expense of the new EU
  member states
• Approvement over their heads as new EU member
  states
• Alternatives more viable pipeline built on land
  
• Baltic Sea gas pipeline gives Russia access to
  new market (UK)
• Fears that Russia may use it for geopolitical
  purposes and to pressure Poland

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Germanys Interests and Views I

• Germanys Changing Debates on Energy Security
• faith in market mechanisms as a cure-all appears
  boundless in the last 20 years the dependability
  of the energy supply has been left to the private
  utility companies, whose corporate strategy,
  however, is primarily profit-driven
• overlooking geopolitical dimensions and the
  factor of energy supply security
• scarcely anyone has felt ultimately responsible
  for safeguarding the future supply of energy
• March 2005 first conference after more than 20
  years, organized by the Federation of the German
  Industry, on energy and raw material security.
• first time that an institutionalized dialogue is
  taking place between the German energy industry
  and the foreign ministry on the
  international/geopolitical dimensions
• until the end of 2007, the coalition government
  will develop a national energy and a national
  resources (raw material) concept

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Germanys Interests and Views II

• Germany Is Overlooking
• Germanys fixation on Russia is even more
  precarious for the former Warsaw Pact countries,
  which are still far more dependent on Russian
  energy than Western Europe is
• Three-quarters of known world oil reserves are in
  the OPEC countries two-thirds of the reserves
  are in the Persian Gulf
• Oil With just 5 of total oil reserves, Russia
  is important not more than the Caspian region,
  off-shore reserves off West Africa and in the
  Gulf of Mexico, from Canadian tar sands and in
  the Venezuelan Orinoco Belt Russia cannot
  replace Saudi Arabia or other major producers in
  the Persian Gulf
• Gas Russia is much more important as a gas
  producer and exporter, where it accounts for 25
  of world exports and 25 of proven reserves
• Russias economy is overwhelmingly based on the
  exploitation of oil and gas resources, but
  favors a highly centralized political system
  where a few men hold the power to reward
  stateowned concessions and guarantee investment
  conditions

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Germanys Interests and Views III

• Germanys Declared Interests at and Views on the
  Nord-Stream Project
• In favour
• Securing gas imports on a long-term contract (at
  least half of the pipeline capacity is earmarked
  for Germany 27.5 bcm 30 of Germanys gas
  demand)
• Diversification of a new transit routes
• Close integration with German energy companies
  and banks (E.ON is a major foeign shareholder in
  Gazprom wih a 6.5 stake
• Russia political more stable than most of the
  other exporter states (like in the Middle East,
  Africa, Maghreb area, Central Asia etc.)
• Germany becoming the most impoprtant energy hub
  and distributor for Russian gas

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Germanys Interests and Views IV

• Against
• no diversification of importing countries
  cementing and increasing Germanys dependence on
  Russian gas and energy in general
• Energy security argument economically cheaper
  options (Yamal 2 through Belarus and Poland
  connecting pipelines to SEE Ukraine and Central
  Asia)
• Germany is already an energy hub and distributor
  for Russian gas.
• Hitherto Security and Military Dimensions of the
  Pipeline Project not being Discussed neither in
  Germany nor in the European Commission or the
  European Parliament!

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Germanys Interests and Views V

• Germanys Declared Interests at and Views on the
  Nord-Stream Project
• Merkel government contradicting factors and
  policies
• pacta sunt servanda
• But far more critical on Russias domestic and
  foreign policies
• Diversification of Germanys energy imports
• Hope for a close economic an political
  interdependence effects (FM)
• Closer cooperation and information with Poland
• Favouring real European energy markets and new
  pipelines from Germany to Poland and other new EU
  members
• Overlooking the security and military dimensions
  on Russias side so far

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Russias Energy Policies and Geopolitical
Interests I

• Russia as an Energy Superpower
• has regained its former Soviet position as one of
  the worlds largest oil and the globally largest
  gas producer
• it has the largest natural gas reserves in the
  world (ahead of Iran)
• prior to the Yukos affair, it had begun to
  attract signi-ficant FDI
• energy cooperation seems like a good complement
  for cooperation on the global war against
  terrorism (US-Russia) and being the main vehicle
  for a strate-gic EU-Russian relationship and
  Europes engage-ment polices vis-à-vis Moscow

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Russias Energy Policies and Geopolitical
Interests II

• October 2000 EU-Russia Energy Dialogue had been
  launched
• Motivations
• EU interest at security of supply
• Russia to secure foreign investment facilitate
  its own access to EU and world markets (half of
  Russias trade is done with EU) and EU support
  of Russias bid for accession to the WTO
• Common discussion
• opening Russias domestic energy market to
  competition (Gazprom controls around 90 of
  Russias gas production and enjoys a monopoly
  situation in terms of exports)
• improvement of business environment, including
  investments
• cooperation on climate change under the Kyoto
  Protocol, ratified ultimately in Jan. 2005
• nuclear safety and decommissioning
• Russias failing ratification of the Energy
  Charter Treaty (ECT)

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Russias Energy Policies and Geopolitical
Interests III

• Gazprom supplies around 25 of the EUs natural
  gas needs
• EU buys 85 of Russias oil exports
• Russia is the EUs fifth largest trading partner
  (after the US, Switzerland, China and Japan)
• Bilateral trade in 2004 96,5 billion
• EU gas imports
• the expense of the infrastructure and the
  investment involved make the supply of natural
  gas far less flexible than that of oil,
  especially during crises (many states depend on a
  single pipeline).
• excessive dependence on Russia, especially for
  natural gas imports, would run counter to the
  EUs imperative of diversifi-cation.
• it would also prove to be a delicate problem
  because of linkage between foreign and security
  policy motives in Russias approach to energy
  exports, which by no means follows purely
  economic criteria.

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Russias Energy Policies and Geopolitical
Interests IV

• There is no guarantee that Western and even
  German companies find themselves in an analogous
  position to Yukos
• The argument that pipelines make suppliers and
  buyers fundamen-tally dependent on one another is
  overlooking the following facts
• It is only true as long as both have and seek
  access to alternative markets
• both sides must recognise that interdependence
  and guide accordingly their strategies and
  policies (asymmetric interdependence in the
  EU-Russia relationship)
• Russian foreign and security experts are
  speculating rightly that EU politicians are
  making a policy of anticipatory kowtows towards
  Moscow (silence for gas)
• Russian Gas Shortage and EU demand
• Russia will remain the main energy supplier of
  the EU until 2020,
• However, the EU will be forced simultaneously to
  import more oil and gas from other suppliers due
  to Russias limited oil reserves, its rising
  domestic energy demand and its diversification
  strategy to export oil and gas (LNG) also to Asia
  (China) rapidly rising domestic demand, failing
  investments and EU gas demand of 490 bcm in 2030).

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Russias Energy Policies and Geopolitical
Interests V

• Putins dissertation of 1997 understands energy
  resources as the main instrument not only for a
  broad economic recovery but also for its foreign
  and security policies for regaining a global
  great power status (Russia as an energy
  superpower of the 21st century)
• Putin and the EU are overlooking major structural
  problems in its energy sector and its
  counterproductive re-nationalisation policies
• Russias reliability as an energy great power is
  questionable because
• of its instrumentalisation for its foreign and
  security policies as well as
• Russian Gas Shortage/Crisis
• 2010 lack of 80-126 bcm
• 2015 up to 200 bcm as the result of failing
  investment (Russias energy sector needs up to
  900 billion until 2025/2030) which already
  undermines a number of agreed and negotiated
  energy deals in the mid-term future
• September 2006 Putin confirmed the shortage, but
  not the volume.

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Russias Energy Policies and Geopolitical
Interests VI

• Improvements along the Producer-Distributor-Consum
  er Chain?
• Energy Charter Treaty and Transit-Protocol
• German Foreign Ministry Energy-OSCE (for a new
  basic agreement bet-ween producer, transit and
  consumer states)? hardly realistic
  effective)
• EU-Russian Energy Partnership underlying
  assumption of mutual interdependence the
  argument that pipelines make suppliers and buyers
  fundamentally dependent on one another is
  over-looking the following facts
• It is only true as long as both have no and do
  not seek access to alternative markets
• both sides must recognise the interdependence and
  guide accord-ingly their strategies and policies
  (political reality rather an unstable
  asymmetric interdependence in the EU-Russia
  relationship)
• Russian foreign and security experts are
  speculating rightly that EU politicians are
  making a policy of anticipatory kowtows towards
  Moscow (silence for gas)

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7. EU-Russian Energy Alliance? VI

• Improvements along the Producer-Distributor-Consum
  er Chain II?
• Putin government is using its energy resources as
  the main instrument for its present and future
  foreign and security policies (see also Putins
  dissertation of 1997)
• Russia seeks to establish a GAS-OPEC to control
  prices and to influence economic, foreign, and
  security policies of regional states in Eurasia
  (including EU)
• ? EU needs more to stick to its principles and to
  adopt a long-term strategy towards Russia, which
  is not so much based on the present Russian
  leadership and elite (siloviki) as well as
  their present policies (encouraging reformers)
• ? EU and German energy cooperation with Russia
  should insist on a real partnership in joint
  ventures and other common energy projects and not
  allow a majority control by Russia.

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Russias Energy Policies and Geopolitical
Interests VII

• Russias Strategic Interests at and Views on
  Nord-Stream
• Stability of European energy supply in the short-
  and mid-term future depends on its energy
  relation with Russia
• Ensures direct energy security of the Kaliningrad
  region
• Creating for a first time a direct link between
  the Russian gas transport network and the general
  European gas network
• Bypassing transit-states, makes Western Europe
  and Germany directly dependent on Russian gas
  pipelines and exports
• Foreign policy impacts respect for Russias
  interests, hope for appeasement policies to
  Moscows Energy Finlandization of Europe
• Weakening the EUs strive for a common energy
  policy (hindering the EUs diversification), CFSP
  and its neighourhood policies
• Increases the negotiation influence on and
  leverage over Transit states
• albeit it is not the cheapest pipeline version,
  it offers a long-term contract of high energy
  prices and incomes guarantees stability and
  predictability, reliability in Russias
  understanding of energy security as a producer
  state

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EU-Energy Security I

• EUs Position on Nord Stream until 2005
• In 1999,study work on the possibility of the
  development of the North Transgas Project
• December 2000 DG-TREN classified the pipeline
  belonging to the Trans-European Networks (TEN)
• April 2001 Gazprom, Ruhrgas and Fortum signed an
  agreement conceing the cost-effectiveness
  analysis
• December 2002 presentation of the new strategic
  project of Gazprom NEGP
• June 2003 Putin and Tony Blair signed an
  memorandum concerning the participation of UK
• In 2002 EU supported idea and declared as a
  priority
• 8 September 2005 North European Gas Pipeline
  established

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EU-Energy Security II

• EUs Position on Nord Stream since 2005
• Poland betwen 1997-2004 believing that it was
  just an element of economic pressure on it and
  other transit states
• Increasing concerns over Russias reliability as
  an energy exporter and partner after the
  Russian-Ukrainian crises
• Progress on the way to a real common energy and
  energy foreign policy
• Diversification of energy imports and better
  crisis management (Nabucco).

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EU-Energy Security III

• Uncertainties of Nord-Stream
• Gazprom or the Kremlin never presented any
  alternatives as the most economically optical
  choice for Russia (based on a geopolitical base)
• Filling the pipeline South Russian fields not
  sufficient by 2010-2013 (planned production rate
  is just 25 bcm instead 27.5 bcm of the first
  Nored Stream pipeline)
• Shtokman field requires an 20 billion
  investment, time of develop-ment uncertain (not
  realistic before 2015) lack of technology for
  deep sea exploration originally it was planned
  to use it for LNG exports
• Real costs of the pipelines may double (according
  to independent Russian experts) up to 8-10
  billion Euro
• Russian gas shortage
• Environmental dimensions affecting the real
  costs

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EU-Energy Security IV

• European Commission calls for a mix of energy
  strategies
• maintaining nuclear energy
• diversifying national energy mixes as well as oil
  and gas imports
• improving energy efficiency
• changing consumer behaviour through taxation
  measures and others
• doubling the share of renewable energies in the
  overall energy supply quota from 6 to 12 and
  raising also their part in electricity of a
  common energy policy
• proposal for increasing emergency strategic oil
  reserves up to 120 days, including against
  volatile price developments, had been opposed by
  member states and the European Parliament.

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EU-Energy Security V

• Increased Use of Natural Gas
• the expansion of natural gas as an environmental
  clean energy source will play a very important
  factor in the next two decades for the EU member
  states
• in this regard, the EU and Russia with its 48
  trillion cubic meter reserves have declared an
  energy partnership in October 2000
• EU import demand in 2010 214 bcm (the worlds
  largest gas import market)
• EU import demand in 2030 490 bcm in
  comparison USA-159 bcm China/India-83bcm
  (IEA-WEO 2006)

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EU-Energy Security VI
Potential Natural Gas Exporters for Europe (mt)
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Conclusions and Perspectives I

• EU is key actor on the international energy
  market
• The largest energy importer of the world
• The second largest global energy consumer
• Enlargement has reinforced the strategic trend of
  rising imports and dependencies, despite the fact
  that some of the new member states are producers
  of primary energy (e.g. Poland for coal and
  Romania for oil and gas)
• Energy supply security will become a more
  important policy issue in the years to come due
  to the global demand as well as to the rising
  dependence of European oil and gas imports from
  outside Europe.
• EU needs to diversify its energy imports,
  specifically those of its new member states
• In this context, Central Asia, Ukraine and Turkey
  as new energy bridges between Central Asia and
  the EU will become more important for Europe.
• More efforts need to be taken in regard of
  greenhouse gas emissions and investment for
  renewable energy sources.

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Conclusions and Perspectives III

• 3 major questions need to be answered by EU
  member states
• In the light of the global energy supply
  security, is a national energy policy still
  sufficient for the future? (no!)
• Do we need a national/common European energy
  foreign policy? (yes!!)
• Is a liberalized energy and in particular gas
  market really realistic when the EU or major
  member states may become ever more dependent on
  Russian gas imports (taking into account Russias
  economic and geopolitical interests of
  strengthening its monopolistic positions
  throughout Eurasia and creating a Gas-OPEC with
  Algeria and Iran)?

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Thank you very much for your attention!