17.06.2014 Author: Petr Lvov

Russia Faces New Gas Challenges

78e5Despite numerous attempts undertaken by Russia and Ukraine with the assistance of the European Union to resolve the gas dispute, the United States succeeded in forcing local authorities in an attempt of derailing the last round of negotiations that was taking place in Kiev on the Saturday night June 15 and all right through to morning. At the same time it’s also clear that the acts of vandalism carried out by several hundred Ukrainian nationalists against the Russian Embassy in Ukraine Friday night June 14 at the moment that Gazprom was holding negotiations with Ukraine’s Naftogaz, was a carefully orchestrated operation organized by a third party – namely, Washington. No wonder then that dozens of law enforcement officers stood silently witnessing an assault on the Russian Embassy. But the gamble didn’t pay off. The US pushed Kiev to go even further – to start publicly insulting Russia’s President Vladimir Putin in front of TV cameras. This act of despair was carried out by the Ukranian Foreign Minister that was quick to join the crowd of vandals assaulting Russia’s Embassy in Kiev, it seems that he was taking advantage of the piece of advice the US ambassador to Ukraine had given him. In turn the United States ambassador praised the actions of the Ukranian Minister of Foreign Affairs in his Twitter (an indirect confirmation that he was the one to provide Ukranian authorities with the idea of resorting to foul play), since the latter was shounting obscene phrases in front of a hooligan crowd and calling Russia’s President names. The aim of this buffoonery was quite clear — to force Moscow to lose temper and break off negotiations with Kiev, this would give the EU an opportunity to claim that the gas negotiations were derailed by Moscow for political reasons. But Americans have miscalculated yet again — the nerve of Russian diplomats, negotiators and politicians was stone solid. Which cannot be said about their US counterparts, since the State Department has started on June 15 the evacuation of its diplomats from Baghdad, although ISIS units haven’t yet reached the Iraqi capital.

In a situation when Ukraine has started playing dirty, pushing Gazprom to accept an intolerable price for Russia’s gas supplies, “Gazprom” had to impose Monday June 16 advance payment requirement from Ukraine’s Naftogaz. “The decision was made owning to persistent non-payments by Naftogaz of Ukraine. The overdue debt of the company for the supplied Russian gas equals USD 4.458 billion: USD 1.451 billion– for November and December 2013 and USD 3.007 billion for April and May 2014” – reads the press-release of the Russian gas giant.

The advance payment for June hasn’t been transferred to Gazprom’s bank accounts as well.From now on the Ukrainian company is only getting the gas it had already paid for. For the European Union, especially for the Western and Central European members along with Baltic states this situation is hardly posing any real threat, given the fact that the share of the Ukrainian transit gas in the total volume of gas consumed by the EU amounts to only 15%. In addition, Russia can increase the total amount of gas delivered through the Nord Stream pipeline. However, when the fall comes all the countries of South and South-Eastern Europe along with Ukraine itself will be caught in a puzzling situation when the temperature drops but there’s no gas left for heating. And then the EU will be forced to return to the discussion of the South Stream project, which has been suspended due to the rigid US criticism. There’s little wonder that US senators led by a Russophobe McCain were visiting Bulgaria last week.

But while the temperature is not yet dropping rapidly, the EU leaders prefer to follow the instructions from Washington. Thus, late on June 16 Brussels officials started hinting that they would substitute the missing volumes of Russian gas by shipments from Iran. Which leaves any sane person with a single question to ask — how could they possibly do that? Via airmail? After all, no pipeline known to man connects Iran with Europe and there is absolutely no infrastructure for exporting LNG. In the meantime, there’s a war raging on in Iraq and Syria, and there’s no way to build a pipeline across to Turkey or to the Mediterranean coast, and then – to the southern European countries. In fact there had been a project of such a pipeline until 2011, before the West and the Arabian monarchies started waging a full-scale war in Syria against the lawful government of Bashar al-Assad. And now the regime of Nouri al-Maliki is about to collapse in Iraq. And paradoxically – in both cases, those armed conflicts were unleashed by the United States, Saudi Arabia and Qatar by using Islamic jihadists, especially al-Qaeda and the most brutal of its branches – the “Islamic State of Iraq and the Levant” (also know as the Islamic State of Iraq and Syria or ISIS).

Sadly, there’s only one conclusion to be made – the US does not want the EU to enjoy the benefits of either Russian or Iranian gas. They want to shove its liquefied shale gas, which is by far more expensive that any of the two above mentioned variants, down the European throat. What is even more fascinating is the fact that the EU has no terminals for receiving the LNG tankers with American shale gas. The construction of such terminals will cost tens of billions of dollars. In addition, one would also have to construct special tankers that will cost a similar amount of the European money. And all of these preparations should take take 3-5 years. So what Europeans are supposed to do now? Especially when the winter comes? Freeze in the name of the US global interests and the sick ambitions of the present rulers of Kiev?

It is quite obvious that in these conditions, Russia will begin forming a radically new gas market to ensure its security. There is no way it could rely on the EU, which has shown that it’s completely helpless in the face of the US dictatoring and even during the negotiations with the Ukrainian government, any more. It has recently launched a huge gas supply project with China. It has yet to build the LNG capacities on Sakhalin to deliver gas to Japan, South Korea, China and a number of Southeast Asian countries. It has to start building new liquefying capacities on the never freezing coasts of the Baltic and the Barents seas to be be able to ship the gas extracted from Shtokman, Yamal and Arctic fields to India, South America and other emerging markets. In addition, it is high time to start real cooperation in the gas sphere with Iran, especially through participation in the development of the South Pars field and further cooperative exporting of the “blue fuel” to India and Pakistan. The costs of the pipeline construction across the Pakistani soil should amount to 1.5 billion dollars, and the costs of the entire project is estimated to hit 7.5 billion dollars. The Iranian gas should be able to cover about 20% of the electricity demand of Pakistan.

Pakistan for a long hasn’t been able to start construction works on its territory. The problem is that its cooperation with Tehran does not suit the interests of some of its allies – in particular, the United States and Saudi Arabia. Currently Iran is suppressed by international sanctions designed to force the Islamic republic to abandon its nuclear program. Due to all of the above stated facts Pakistan hasn’t been able to provide the funds required for this project to become reality. Tehran, on the other hand, agreed in 2013 to provide Pakistan with a loan of half a billion dollars on the condition that a part of the pipeline in Pakistan will be built by an Iranian company. It is expected that the consumers from Pakistan will be able to enjoy the “blue fuel” delivered from the Iranian South Pars field in December 2014.

And then, out of nowhere, the US decided to threaten Pakistan with sanctions in case it was going to participate in the construction of the pipeline. Nevertheless, the solemnly opened ceremony in celebration of the beginning of construction of this pipeline was carried out at the coastal city of Chahbahar in March 2013. Pakistani media have called this ceremony a historic event. This pipeline is planned to be more than 1880 kilometers long. The pipeline will stretch 780 kilometers through Pakistan. As for Iran, it has already built a total 900 kilometers of pipes across its territory. Daily shipments should amount to 21 million cubic meters of gas once this project is over.

However, for more than 10 years the fate of another part of the project, a pipeline stretching 2,775 kilometers through Pakistan to India has been unclear. And the only visible obstacle here is politics, including the one the US has been carrying out in the region. When in the summer of 2007 the Indian authorities found out that their partners have little desire to seek compromise on a number of the most pressing issues for them (such as the size of the transit fees, the guarantee of pipeline’s security in Pakistan, the clear price formation mechanism ), they decided to temporarily refrain from participating in any further negotiations. According to some analysts this decision has also been affected by the pressure Washington applied to them. Therefore, the historical significance and strategic importance of this project has been questioned in New Delhi. According to preliminary findings of the Indian analysts, the gas delivered by this pipeline will cover no more than 5-10% of the present India’s needs. In addition, they pointed out that the pipeline will be delivering the gas that can only be used as fuel. Hence there would be no possibility for them to chemically process it. Under these circumstances, Islamabad and Tehran have came to a decision of starting the project without India. It is remarkable that the Iranians are still talking about this project as there were three sides participating in it. According to their statements, India may join it at any given time once again. Especially if Russia takes part in the construction.

In any case, Moscow is in an urgent need to take the southern road in its gas business, both through the development of LNG capacities and the participation in joint projects with Iran — a country with second largest gas reserves in the world.

Especially if Russian analysts are to consider the fact that the work within the GECF (the Gas Exporting Countries Forum), created in 2009, had no noticeable positive effect for Russia, primarily due to political reasons. The headquarters of GECF are located in Qatar, which had been playing the role of an American lobbyist in GECF. Just like a number of other countries that find themselves under the Washington’s pressure.

At the same time Moscow has to act quickly and it should have no illusions about the possible EU and Ukrainian transformation in friendly neighbours. Indeed, in a time when Russia, the EU and Ukraine were still carrying out negotiations, a number of important steps that would facilitate the construction of a gas pipeline from Azerbaijan stretching across Turkey to Greece and then to the countries of South and South-Eastern Europe (TANAP) were maid. In fact, this project exists to bring ease for the EU authorities, especially the Bulgarian and Serbian one, when the South Stream will cease to exist. Although theoretically speaking the gas volumes that should be delivered by TANAP will be unable to meet the increasing Europe’s need for gas, yet it is clear that this project is able to reduce the demand for the South Stream construction. Under these conditions, despite the EU’s urgent need for channels of gas supply, the planning and the actual implementation of new projects has already been jeopardized. The chances of survival of the South Stream will largely depend on how much gas per year will the above mentioned projects will be able to deliver to the European consumers. But in any case, the TANAP project should provide the European officials with a number of arguments on their negotiations with the representatives of Gazprom. TANAP must be capable of meeting Turkey’s need for “blue fuel” and then provide the “south wing” countries of the EU such as Greece, Italy, Albania with a sufficient amount of natural gas. Besides, we must not forget that this option was chosen by the United States so the EU authorities must really like it.

Furthermore, TANAP — is not a project that is limited to the transition of the Caspian or Turkmen gas. This project can bring the natural gas from Iran, Iraq, Israel and Cyprus to the European Union. Thus, Moscow must understand that TANAP can cause a more inconvenience for the implementation of the South Stream project.

By summarizing the above stated facts one must say that it is high time that Russia should change its gas policy by accelerating the production and the export of LNG and by diversifying its market to the southern direction, as well as through the cooperation with Iran and other gas producers on a number of mutually beneficial international projects.

Petr Lvov, PhD in Political Sciences, exclusively for the online magazine “New Eastern Outlook”.