[Marxism] Pipeline politics

Louis Proyect lnp3 at panix.com
Tue Jul 11 07:45:26 MDT 2006

Washington Post, Tuesday, July 11, 2006; D01
Politics Of the Pipelines
U.S. Seeks Ways to Route Natural Gas Around Russia
By Steven Mufson

For a low-profile State Department official, Matthew J. Bryza gets around. 
A member of the bureau of European and Eurasian affairs, he frequents 
places such as Turkey, Georgia and Azerbaijan. This year, he's also popped 
in on people in Brussels, Rome and Berlin. One key item on his agenda: 
persuading governments and energy companies to build natural gas pipelines 
that skirt Russia.

New routes that avoid Russia would "make the market function better" and 
enhance energy security, a senior State Department official said. "We're 
sharing information and a vision."

Russia doesn't share that vision. The Kremlin has been conducting its own 
campaign to lock producing countries in Central Asia and consumer countries 
in Europe more tightly into Russia's pipeline network.

The politics of gas pipelines has added friction to the preparations for 
the Saturday to Monday meeting of the Group of Eight industrial nations, to 
be hosted by Russian President Vladimir Putin in St. Petersburg. A year 
ago, Putin said this meeting's "key topic" would be energy. "The country 
which is definitely a leader in the world market is ordained by God to deal 
with this issue," he said after last July's G-8 summit.

Despite Putin's boast, the summit's focus on energy will only highlight why 
Russia remains a troublesome issue for the West. The oil and gas industry 
reflects Russia's autocratic nature, diplomats and energy experts say; it 
is controlled by the state, opaque to Western investors and difficult for 
foreign firms to enter.

Although the United States and Russia may strike a deal on reprocessing 
waste from nuclear power plants, the pipeline politics has highlighted the 
mutual mistrust between Russia and the West, especially after Russia 
briefly cut gas supplies to its neighbor Ukraine in January. While Russia 
said it wanted to end subsidies on natural gas sold to Ukraine since Soviet 
days, squeezing supplies in winter shortly after the ouster of a 
pro-Russian president smacked of a crass political maneuver. "No legitimate 
interest is served when oil and gas become tools of intimidation or 
blackmail," Vice President Cheney said in a May 4 speech in Vilnius, 
Lithuania, angering Russians.

Because much of the Russian gas bound for Europe flowed through the Ukraine 
route, people in European capitals took notice. "This sharpened the 
attitudes of Europeans even more than the Americans," said a senior 
European diplomat who spoke on condition of anonymity because talks are 
ongoing. "This was very much an important thing for us."

Europe relies on Russia for about a third of its natural gas supplies. 
Those supplies arrive via two major pipeline routes constructed in the 
1980s over the objections of the Reagan administration. Today the United 
States realizes that Russian gas will remain vital to Europe, but it is 
pushing nations to diversify supplies so that Russia cannot exploit 
Europe's energy dependence for political purposes.

"What does it mean to achieve energy security when you're reliant on one 
country?" Karen Harbert, assistant secretary for policy and international 
affairs at the Energy Department, asked at a meeting at the Carnegie 
Endowment for International Peace.

At the same time, however, Russia sells 80 percent of its natural gas to 
Europe and is worried about European plans to increase gas purchases from 
Algeria and Libya, as well as about liquefied natural gas from Qatar, which 
plans to triple its exports.

Bryza and more senior U.S. officials have been promoting pipeline routes 
that would bring gas from fields in Kazakhstan, Turkmenistan and Azerbaijan 
near the Caspian Sea through Turkey to Europe. One such pipeline, from 
Azerbaijan through Georgia to Turkey, opens Oct. 1. U.S. officials have 
been saying that reserves in Azerbaijan alone could justify bigger 
pipelines even if territorial disputes over the Caspian Sea are not 
resolved. (Missing from the U.S. vision: supplies from Iran, whose natural 
gas reserves are second to only Russia's.)

Former Soviet Bloc countries are enthusiastic, especially since Russia has 
boosted prices on gas sold to Moldova and Belarus. Georgia President 
Mikheil Saakashvili said during a recent visit here that he supports a 
pipeline that would bring gas from the Caspian Sea basin through Azerbaijan 
and Georgia, then under the Black Sea (to avoid Russia) to Romania and then 
north to Poland. Building that line would take at least five years.

Meanwhile, Moscow isn't idle. It has dangled higher prices in front of 
producers including Kazakhstan and Turkmenistan. It has held talks with 
other gas-exporting nations, such as Algeria and Iran, about coordinating 
policies so they don't undercut one another. And it has deployed former 
German chancellor Gerhard Schroeder to promote a new direct pipeline link 
between Russia and Germany. (Schroeder now works for the Swiss-based 
pipeline venture controlled by Russia's state-controlled OAO Gazprom.)

Poles fear that a Russian-German pipeline under the Baltic Sea would enable 
Russia to pressure Poland, which would no longer be a transit route for 
Russian gas destined for Germany. In late April, Poland's defense minister, 
Radek Sikorski, said that the deal to build the $5 billion, 750-mile 
pipeline was in "the Molotov-Ribbentrop tradition," a reference to the pact 
between Hitler's and Stalin's foreign ministers that led to the partition 
of Poland in World War II.

"We want . . . no monopolies or blackmails, price-fixing or the use of 
energy as a tool of politics, or geopolitics," Sikorski said in an 
interview with the BBC.

Not everyone buys the U.S. vision. "It's very simple to make lines on a 
map," said a European energy company executive who had met with Bryza and 
spoke on condition of anonymity to protect his U.S. relationships. "It 
costs $2 billion, if not more, to build a pipeline from Turkey."

Many European companies have interests in Russian gas projects. German 
energy giant E.On Ruhrgas AG and chemical giant BASF AG own minority stakes 
in Gazprom's Northern European Gas Pipeline under the Baltic. The Italian 
state oil company, Eni SpA, is Gazprom's partner in the Blue Stream 
pipeline that carries gas from Russia to Turkey under the Black Sea.

But Russia is still worried. Eni is also building a pipeline from Libya to 
Italy. And Qatar says a third of its exports will go to Europe.

As part of its strategy to hang onto European markets and expand its reach, 
Russia wants cash-rich Gazprom to invest in European gas distribution 
systems in Britain, Germany and Italy. Russian officials say that if 
Western firms want to invest in exploration and production in Russia, 
Gazprom should have similar access to Western investment opportunities.

Europe is reluctant, though. In a subtle yet clear message, two European 
Union ministers wrote in May to the Russian government, saying the 
competition "rules applied to Gazprom will be no different to those applied 
to . . . other companies." They noted that "the fact that Gazprom is the 
exclusive exporter of gas from Russia to the EU, when other Russian 
companies and foreign joint ventures with gas reserves would otherwise be 
in a position to supply the EU market, will be a significant fact that will 
necessarily be taken into account."

"Reciprocity is something we're looking for," said the senior State 
Department official, who spoke on condition of anonymity because the talks 
are ongoing. He urged Russia to let foreign oil or gas firms explore and 
use Russia's pipelines.

Yet foreign investors still find Russia challenging territory. Russia has 
announced new limits on foreign ownership of key energy resources. TNK-BP, 
a joint venture involving BP PLC, has had trouble getting access to export 
pipelines; delays have been seen as an effort to force it to sell a stake 
in its fields. Last week, Russia's parliament reaffirmed Gazprom's monopoly 
over the nation's gas pipelines. And 10 months after releasing a short list 
of five foreign firms, including U.S.-based Chevron Inc. and Conoco 
Phillips, Russia has still not said which ones will share with Gazprom the 
rights to explore the big Shtokman natural gas field.

Russia has avoided a new conflict over Ukraine on the eve of the G-8 
summit. In January, Russia and Ukraine reached a temporary accord, which 
expired July 1. A decision on new terms has been delayed until Ukraine 
forms a new government. That will be, conveniently for Russia, after the 
G-8 meeting.

Meanwhile, Moscow has been wooing foreign gas producers. Shortly after 
Cheney visited Kazakhstan and won a pledge from that country's president to 
export Kazakh gas through a trans-Caspian pipeline, Russian officials 
visited Kazakhstan and reportedly reached a deal for Gazprom to transport 
Kazakh gas.

Turkmenistan is also negotiating with Russia, seeking to raise the price it 
is paid by two-thirds. It may accept less, but there is still no pipeline 
across the Caspian, and Turkmen relations with Azerbaijan aren't great. 
"Turkmenistan doesn't have much of an option," said Hossein Ebneyousef, 
president of International Petroleum Enterprises, a consulting firm.

But if Russian concerns about competition from other nations helped raise 
the price paid to Turkmenistan, that is a sign that the U.S. strategy is 
working, U.S. officials say. And if European nations buy more supplies from 
Libya, Algeria and Qatar, that's as helpful as buying more from Azerbaijan. 
"That's the name of the game: Get more coming in from every possible 
direction -- except Iran, of course," the State Department official said.



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