Gas

Some of you who have looked at my book ‘Beautiful to forget, more beautiful still to be forgotten’, which I created this summer while travelling in Eastern Europe, may have noticed (or very much failed to notice) a particularly boring page near the end. You will be surprised then, to learn, that this drawing of the signing of the Nabucco Intergovernmental Agreement on July 13, 2009 is almost certainly the most interesting page in my book.

I will now break my months of silence (laziness) on the subject of the Nabucco agreement. What we are talking about here is what I consider to be the core of real global politics- that is, geo-politics, where borders, leaders, military might- the whole clusterfuck of elements that make up “political” entities like nation-states and governments- exist essentially to manage (or mismanage) resources. We are in the realm of resources and power; the prime question of power being, who really controls the resources?
What was happening behind closed doors and beneath our feet while we wandered around Romania and Bulgaria this summer was an ongoing and extremely important struggle between Russia and the European Union over who will control the flow of Natural Gas from the Caucasus, Central Asia, and the Middle East to the European Union.
Let’s start with Gazprom. Gazprom is a State-owned Company with close ties to the Russian Government. It supplies ¼ of the gas imported to the EU, and of the EU’s 27 member states, 7 are almost totally dependent on Gazprom to meet their energy needs. For the past few decades Gazprom has been essentially the sole buyer for crude natural gas from nations such as Azerbaijan and Turkmenistan, which were former Soviet Satellites. The gas from these countries, as well as gas from within Russian territories, has always run west towards the European market through Soviet-era pipelines which are owned and controlled by Gazprom, and which run through (former Soviet satellite) ‘transit countries’. The outcome of this situation has been enormous political leverage for Russia, which acts as the sole broker for an essential source of Energy for Europe. Ever wonder why Western European Politicos grumble a lot about Russia under their breath, but won’t say shit to Russia’s face?
The European Union has made getting it’s nuts out of this vice grip a priority, partly because it wants to be able to openly condemn Russia for corruption, state-sponsored violence for instance against journalists, activists and ethnic minorities, lack of openness in the political system, and so on, but mainly because it is concerned about it’s own long-term energy security; the EU has been pushing since 2004 for a pipeline to be built from the Caspian Region to Austria which would carry gas from the Caucasus, Central Asia and the Middle East, and which crucially would not go through any Russian Territory. This pipeline, which has the advantage of consolidated political support from practically all of Europe, is called the Nabucco Pipeline. (is this starting to come together for you?).
Gazprom (i.e., Russia) is, of course, supremely pissed. In June the chairman of the company, Alex Medvedev (perhaps no relation to Russian president Dmitry Medvedev, but then again, we are talking about Russia here) basically issued a direct threat to Europe, saying publicly: “ Only three countries can be suppliers of pipeline gas in the long-term; Russia, Iran, and Qatar, so there is no other choice than to deal with these suppliers. Europe should decide how to handle this situation, and if Europe doesn’t need our gas, then we will find a way of selling it differently”. In addition, Moscow has openly said that competition for energy supplies in areas including Central Asia and the Caspian Sea could lead to military conflicts along it’s borders over the next decade.
Gazprom has proposed the construction of two new Russian pipelines which are essentially a direct and not particularly friendly response to the Nabucco plan- Nord Stream, running from Western Russia, under the Baltic sea to Germany (it is under construction and set to start delivering gas in 2011), and South Stream, which would run from Russia’s south coast, under the Black Sea to Bulgaria and on to Italy. You will notice that Russia is eager to pump gas under seas in order to avoid price disputes with “transit countries”. Such a price dispute with the Ukraine in January 2009 left Bulgaria entirely without gas for two of the coldest weeks of the year; during those weeks an estimated 800,000 homes were left without proper heating and vital factories were forced to shut down or cut production, leading to a roughly 300 million dollar profit loss. Another side note here- Gazprom’s Nord Stream line is being built by a consortium which includes top German and Dutch Energy companies and which has former German Chancellor Gerhardt Schroeder as chairman of it’s shareholder’s committee (yes, you can feel free to laugh out loud here).

Western Europe is anxious to play it’s hand right, and is justifiably concerned with it’s long-term energy needs. Russia is almost always half a step ahead- for instance, while Gazprom plays aggressively to kill Nabucco on it’s offensive tack, on its defensive tack it is also investing in strategic gas storage facilities throughout Europe. Meaning, if Europe wants energy security in the time of crisis it hopes to avert by investing in infrastructure for long-term uninterrupted supply, it may find itself once again paying Russia out the nose.
Now, the question of supply side. This is probably my favorite part of this story. So, the main problem with the Nabucco pipeline is the concern that the EU will not be able to secure sufficient supply, and the pipeline will actually only be used at half-capacity. This is because there is limited supply from the proposed supply countries, and Gazprom has been viewed as having the upper hand in the fight to secure supply because of it’s pre-existing relationships with the suppliers (combined with it’s willingness to issue direct and indirect threats, including threatening the use of military force). As Alex Medvedev rightly, and smugly indicated, the EU may just find itself looking to Iran to fill the pipe to capacity, or find itself forced to negotiate with Iran in order to arrange transit of Qatari gas, and that would put Western Europe in an even more awkward political position globally, now wouldn’t it?
But the coup de grace in the latest chapter of this story, at least for me, has to be Turkmenistan. Ah, Turkmenistan. You are so scrappy. Turkmenistan claims to possess the world’s 5th largest reserves of Natural Gas. It is basically a one-party state run by President Kurbungaly Berdymukhamedov since 2006 when he became the successor to Soviet-era dictator (made “President-for life in 1999- what a title!) Saparmurat Niyazov, whom he once served as ‘Presidential Dentist”, before being crowned minister of health, and then running for the executive office. Berdymukhamedov won the election in ’06 with 89% of votes. There were 6 candidates in the Poll, all from the same party, and exiled members of opposition parties were not permitted to compete. Turkmenistan has an absolute government monopoly of media and the State controls Internet access. Almost all it’s citizens are extremely poor.
So…. while Russia and the EU were aggressively courting Turkmenistan, trying to secure gas supplies for the South Stream pipeline and the Nabucco Pipeline, respectively, what did Turkmenistan do? It opened a pipeline from it’s Dovletabad field to the Khangiran refinery in Iran, thereby doubling it’s exports to Iran, AND it built a pipeline to CHINA, stretching 1,100 miles through Uzbekistan and Kazakhstan, which was opened in December 2009, and which will supply ½ of China’s current annual demand for Gas. Chinese President Hu Jintao indicated at the signing ceremony that China views the opening of this line as a major advance of Beijing’s influence in the region. In one of the most mind-blowingly oblique and thought-provoking statements ever made, President Hu added “China is positive about our co-operation, and the opening of this gas pipeline is another platform for collaboration and co-operation between our friendly nations”.
President Berdymukhamedov responded to Hu in a similarly eerie tone, saying “This project has not only commercial or economic value. It is also political”, adding; “China, through its wise and farsighted policy has become one of the key guarantors of global security”.