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Arctic, Azerbaijan, Caspian, Caucasus, Central Asia, Energy Diplomacy, Environment, Europe, International Relations, Liquefied Natural Gas, Mediterranean, Nord Stream, Pipeline, Russia, Shale Gas, South Stream, SouthernGasCorridor, Trans-Anatolian Pipeline, Turkey

The New Trends in Russian Energy Policy following Third Presidency of Putin


The current Russian energy policy kept in memories only with its failures. Why? Every day I read dozen of news, articles, and columns about Russian energy policy. Almost in every piece I face with misleading information about Russian energy policy. Media is very strong ideological war tool and can manipulate mid-level community very easily with its baseless speculations. In my humble opinion, some news portal deliberately tries to blacken the energy image of Russia gained since Putin’s first presidency terms. However, Putin’s third presidency terms might be characterized with Russia’s successful steps toward “energy super-power” status.  I would like to list some points about Russian energy policy which misused to decrease Putin’s image in his third presidency term. However, notwithstanding all those speculations, Putin steps very successfully through his energy plans:

1) On September 4 (2012), the European Commission (EC) launched a formal anti-trust investigation into Russian state-owned company Gazprom, since EC’s concerns that Gazprom may prevent the diversification of supply of gas and impose unfair prices for its customers in Europe. This information were inflated by some famous news portals and made people to believe that, Russia loses its previous energy hegemony in Europe. According to media, no enterprises could get away from EU’s anti-trust investigation, such as Microsoft and Google. However, one must understand that recent Gazprom is the project of former KGB spy, but not the project of University student or entrepreneur. Today the management of Gazprom is held by well-trained Putin’s St.Petersburg team.

Following that, Russian President Vladimir Putin has signed a decree forbidding state-controlled firms providing information to foreign authorities without Government (Moscow’s) permission in order to protect the interests of strategic companies operating in abroad. The presidential decree covers all companies (Gazprom, Rosneft, Zarubeshneft, Transneft, Russian Railways and several major arms producers) considered as strategic. This was the first response of Russia to Europe and media speculations. Putin confirmed that, Gazprom is not only a state-owned company, but also strategic interest of Russia in abroad. This presidential decree was the pure message of official Kremlin: “Playing with Gazprom’s interest is the same with playing with Kremlin/Russia’s interests”.

2) The other news was about postponement of Shtokman LNG project in Barents Sea and oil drilling project in Kara Sea (postponed till October 2013). Shtokman is considered the one of the biggest gas fields of Russia with 3.9 trillion cubic meters natural gas reserves. Project was shelved because of its high exploration costs and Norwegian company Statoil handed back its 24% stake in the project backing to cost issue saying “it’s commercially not viable”. The media falsified this step as a failure in Russian energy policy. However, Russian can compensate these loses realizing new projects. For instance, Russia is about in the last phase of the implementation process of the South Stream project, and recently launched the second leg of the Nord Stream project. According to Alexei Miller’s statement, the Head of Gazprom, “Russia is seeking for to construct the third and fourth leg of Nord Stream. Statement has been warmly welcomed by UK.” However, there is still not a serious official statement by UK officials.

Due to media Russia postponed the oil drilling project in Arctic’s waters (Kara Sea) because of Greenpeace activists’ protests. However, one must remember that, Putin signed a decree to re-route the Eastern-Siberian Pacific Ocean oil pipeline away from Baikal Lake due to environmentalists’ protests in 2006. The activists considered this step as a victory, and deemed that Putin made this step because of their opposition to protect the nature around Baykal Lake since this lake is protected by UNESCO. But, Putin’s energy interests are beyond of the ecology of Russia. Re-routing the ESPO, Putin brought pipeline more closer to the oil fields of Yakutiya and Irkustsk region whose resources might be used to fill the pipeline.

3) As EU’s anti-trust probe launched against Gazprom, it’s deemed that Russia loses its energy power role in the region. However, during APEC summit held in Russia’s Far East city, Vladivostok, Russia and Japan signed an agreement to construct the LNG terminal in Vladivostok. Russia is now aiming to sell LNG to China, Korea and India. From the other side, Russian-Japanese relations remains tensioned because of Kurile Islands dispute. U.S strongly supports Japan in islands issue, because if Japan will gain the control over those islands, U.S will be able to deploy its missile defense system in those islands as well. Therefore, Russian remains his tough position toward Japan in this issue. Russia understands that, EU energy market is not immortal. Therefore, as you see on Russian coat of arms – two-head eagle look both east and west – Russia also wants to address its energy both to east and west.

4) Another energy centre on which Russia is seeking to strengthen its position is the new gas fields (Tamar, Leviathan and Block 12) of Eastern Mediterranean, so-called the “The Fifth Energy Corridor”. Russia’s energy behemoth, Gazprom is negotiations with Israel in order to acquire share in this fields. However, the exploration of those filed is still remains disputed because of tension relations among coastal countries – Israel, Palestine, Lebanon, Cyprus and Turkey.

5) Recent ballyhoo for US’s “Shale Gas Revolution” confused some experts whether US will lead European gas market with its cheaper gas overwhelming Russian energy hegemony. I would not call it “new revolution”.  Because, first of all, it’s not a new trend, secondly, it’s not a revolution. Because, US’s shale gas resources and exploration was known since 2000 years in US. From the other hand, before to rice sensation about shale gas, one must think about the transportation and export opportunities of shale gas to Europe. Both, U.S. and Europe will need to construct the LNG terminals on their Atlantic costs, since it’s very hard to imagine the construction of pipeline under Atlantic Ocean. Or how much it will politically charge Europe to cooperate with US on gas sector bypassing Russia?

6) Furthermore, the Russian company Stroytransgaz has already finished the operations in Turkmenistan for the construction of the Malay-Bagtyyarlyk gas pipeline and other infrastructures, including a crossing under the Amu Darya River as well as a gas metering station. (Turkish Weekly)

7) On 23 October 2012, Russia launched its giant gas field in the Yamal-Nenets region of Russia, the Bovanenkovo field which is the biggest gas-rich field in Arctic (Yamal) peninsula. Bovanenkovo contains almost 5 trillion cubic metres of gas. Gazprom also constructed the pipeline, which takes the gas across the Baydarata Bay to Ukhta (Komi Republic) and from there to Torzhok (Central Russia). The two other Yamal projects – the South Tambey field and the Novoportskoye – are under preparations and are developed by Novatek and Gazprom Neft. The Bovanenkovo production started at Gazprom’s Siberian Achimgaz joint project with German Chemical Group BASF in 2008. (Barents Observer)

8) On 26 June 2012, Turkey and Azerbaijan signed a MoU for construction of Trans-Anatolian Gas Pipeline (TANAP). While Turkey considered the construction of TANAP as a way to decrease its natural gas dependence from Russia, Kremlin responded very adequately that, you will be still dependent from Russian gas till the end of construction and implementation of TANAP (2018). From the other side, Russia increased the natural gas flow for Turkey while the explosion in Turkish-Iranian gas pipeline suspended the gas export for a while.

9) On 22 October, British oil major BP sold its 50% stake in joint venture TNK-BP for 26.8 bln $ cash-and-stock sale (17.1 bln $ in cash and 12.84% of Rosneft’s stake) to the Russian state-owned Rosneft. Rosneft has also agreed the terms to acquire the AAR (group of Russian oligarchs – Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik) consortium’s 50% stake in TNK-BP for 28 bln $ in cash. Conqequently, Rosneft is turning to top oil company (with TNK-BP) in Russia and in the world, which will pump more oil and gas than ExxonMobil (with 1.7 times the production of Exxon Mobil) (Bloomberg). President Vladimir Putin praised the agreement at a meeting with Igor Sechin, the Head of Rosneft and his close ally: “This is a good signal, a major deal, which is important not only for the energy sector but also for the entire economy.” Consequently, Rosneft owns full control of TNK-BP in separate deals signed with BP and AAR. The total cost of deal will be about up to 60 bln $. (Moscow Times)

This deal is the Sechin’s second contribution to Putin’s energy plans and Russia energy policy and might be considered as a “Deal of Century for Russia”. Sechin’s first main contribution to Rosneft was during Putin’s first presidency term (2000s year), when he worked the plan for takeover of Yukos (then Russia’s largest oil company) from Mikhail Khodorkovsky (then Russia’s richest man). Khodorkovsky was put in prison (he still remains there) on charges of tax evasion.

The recent deal will consolidate the Kremlin’s position as the world’s most important energy player and Rosneft will be the second (after Gazprom) “National Champion” of Russia. According to Ariel Cohen, the Senior Research Fellow at Heritage Foundation, “Vladimir Putin’s vision of Russia as an “energy superpower” just got closer to reality”. Gaining control over TNK-BP will enable Rosneft to continue the oil drilling activities in Arctic waters (Kara Sea). According to Kostis Geropoulos, the Energy and Russian Affairs Editor at New Europe, “The deal also makes BP a one-fifth shareholder in Rosneft. BP could re-launch plans to unearth Arctic oil following its strategic deal with the Russian state firm”. However, Russia must be careful about the exploration of his entire natural resources by foreign companies, as future generation may lose the control over Russian energy resources.  After the TNK-BP deal, other biggest private oil companies in Russia will remain Lukoil and Surgutneftegaz (which controlled by a group of Putin’s friend).

10) The South Stream pipeline – the old energy trend for Russia, but new energy wave in Europe – considered connecting EU consumers to the gas reserves of Russia and it will deliver gas to the countries of Central and South Eastern Europe. The Russian onshore section will run from the Pochinki compressor station to the Beregovaya compressor station at Dzhubga; the 900 km long offshore section will run from Dzhubga under the Black Sea to Bulgaria (Varna-Pleven). From there, the south-western route will lay down through Greece and Ionian Sea to the South of Italy. Greece has also proposed that the southern pipe may also supply the Turkey-Greece-Italy pipeline. The north-western pipeline will run from Pleven to Serbia, Hungary and will end in Austria (Baumgarten). Another branch will probably run through Hungary and Slovenia to in Austria (Arnoldstein) near the Italian border to supply northern Italy. An option to re-route this branch through Croatia instead of Hungary has been considered also (by Gazprom).

Gazprom is the operator of the South Stream pipeline project and has already signed a number of intergovernmental agreements with participating countries (Croatia, Bulgaria, Serbia, Hungary, Greece, Slovenia and Austria) through which the pipeline will run. Russia/Gazprom plans to include Balkan countries to his South Stream project before all of them absorbed into EU membership network. This can hamper the energy hegemony and monopoly of Gazprom in Europe. Because, given the rules of Third Energy Package and Energy Charter, Russia monopoly might/will be limited in EU territories.

Because of the Russia–Ukraine gas crisis, the pipeline planned to be routed through Turkey’s waters to avoid the Exclusive Economic Zone of Ukraine. According to the “United Nations Convention on the Law of the Sea, the delineation of the route for laying of pipelines on continental shelf is subject to the concession of the coastal state(s)”. Lately there were rumors in media that Ukraine will permit the construction of South Stream in exchange for Russian permit to build the White Stream offshore gas pipeline from Georgia to Ukraine. The South Stream project negotiations launched against the Southern Gas Corridor or Nabucco. The project is the main rival to the “Southern Gas Corridor” concept and it is a political project to counter Nabucco and to expand Russian energy hegemony in the region.

This is a traditional foreign energy policy of Russia which is seeking to expand its control over European energy market. Gazprom owns various methods to realize its monopoly intension. One of these methods is to acquire the shares of European energy companies. For instance Gazprom owns certain shares in: Wingas (Germany), Gas-Invest (Czech Republic), Gasum (Finland), Lietuvos Dujos (Lihuania), Eesti Gaas (Estonia), Latvias Gaze (Latvia, Panrusgaz (Hungary), Promgaz (Italy), Gazprom UK Trading (UK), Moldovagaz (Moldova), KazRosGaz (Kazakhstan), EuRoPolGaz (Poland) and etc. Another tactics follows the first one. So, if the company does not accept Russian bid to acquire share in their national companies, Russia increases the natural gas prices for those countries or shut down gas transportation in the mid of winter (such as during Russian-Ukrainian gas crisis).

11) The Arctic regions and the exploration of Arctic’s energy resources is another new trend in Russia energy policy. Russian state-owned Rosneft and US company Exxon Mobil are set to work on exploration plans in the Arctic regions of Russia. India’s state-owned Oil & Natural Gas Corporation also interested in taking a stake in the Arctic shelf. Furthermore, Arctic shelf is turning to new geo-political war centre because of its vast energy resources contained itself. Those energy resources constitute the main dispute factor among coastal countries. Russia owns the largest portion in Arctic in terms of energy resources. In this regard, Russia is going to militarize the Arctic region in order to secure its political and economic interests in the Arctic. I talked more about the geopolitics of Arctic region in my latest article titled “The Arctic: Venue of Geopolitical Wars?” .

To sum up, backing to above-mentioned cases, Russia is confidently stepping through his energy plans toward being “Energy Super Power”. One must not forget that, for the time being Russia owns vast energy resources and largest geography in the world, he will dominate in the region, who knows, maybe beyond the region in the future. Let see!

Ilgar Gurbanov

Analyst on Russian Affairs and Energy Security

Strategic Outlook

You can find original article at: http://www.strategicoutlook.org/asia—pasific/news-the-new-trends-in-russian-energy-policy-following-third-presidency-of-putin.html

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