Thursday, May 24, 2007

Britain Goes Without Russia in Energy Needs : Should Russia Worry?

Several developments on the subject of EU-Russia energy cooperation have popped up yesterday that deserve attention. British PM Tony Blair in a statement in The Times talked about the future of British energy policy; the article, specifically the paragraphs below, caused a lot of anxiety in the Russian press, heightened by the tensions over the "severe cooling of British-Russian relations" amid the Lugovoi extradition:

As if that were not enough, we are now faced with countries such as Russia, who are prepared to use their energy resources as an instrument of policy. Over ten years I have watched energy policy go from being a relatively quiet backwater to something taking on a strategic importance that could be as crucial to our country’s future as defence.

Russian daily Vremya Novostey cites evidence for the specific anti-Russian nature of the British white paper on energy in the focus of PM Blair on the Langeled natural gas pipeline from Norway rather than on the Nordstream pipeline into Germany from Russia, as the principal future source of British gas. Another reason cited by the Russian newspaper is the shielding of the British energy market from Russian energy giants, in the face of Gazprom. The Russian monopoly was not cited as one of the consultants on British energy policy development, and rumors have circulated among top officials that Russian companies may no longer be given access to downstream energy operations on the British Isles.

Yet the language of the media seems to take too seriously the "threats", if they are such from Britain's white paper on energy. Britain was one of the least dependent countries in the EU on Russian energy supplies, and only recently has it felt the need to import large quantities of oil and gas, as the resources of the North Sea began shrinking. Many forget the mood that dominated the British energy regulators when news circulated of Gazprom's attempts to acquire British downstream operator Centrica; the mood was far from supportive explaining why the bid never materialized. Although Gazprom has set plans to increase its stake in the British energy market to 10% or more by 2010, no significant guarantees or notes of support were ever given by the British government.

Another quandary that should be noted when talking about British energy policy is their undefeated commitment to a 60% reduction in greenhouse gases below 1990 levels by 2050, which raises the need to create nuclear powerplants, and greener energy generators (wind, solar, wave, etc.), by itself reducing the dependence of Britain on foreign suppliers. The jab at Russia in the British prime-minister's speech probably means that the chances of Gazprom entering the British downstream energy market or Britain relying heavily on Russian oil and gas have gone from low to very low. British energy policy will not see a fundamental shift away from Russia as a major supplier, since the latter was never in such a position.

Little is lost from the new British energy policies; the rest of the EU has done a lot to keep relations in the energy sphere with Russia as warm as in a sauna. Austria, recently visited by President Putin, which passes on a third of Russia's energy supplies through its territory has signed a long-term supply deal with Gazprom until 2027, something that others in the EU are expected to do in the near future.

In another key development, European energy giants called for greater political support for increased business ties with Russian Gazprom, saying growing tensions between Moscow and the European Union should not be allowed to jeopardize energy security. As the International Herald Tribune reports:

As EU and Russian leaders continue to disagree, the bloc's big energy companies are making their own deals with Gazprom. With Russia as Europe's most important supplier of natural gas - demand for which is expected to rise sharply over the coming 10 years - officials at an energy conference in Berlin, sponsored by the Russian Gas Society said both sides had an interest in increasing energy security.

"It is about long term contracts, infrastructure joint ventures and asset swaps," said Uwe Fip, senior vice president of E.ON Rurhgas.

Edouard Sauvage, vice president of the supply division of Gaz de France, said the strategy toward Russia was to have reliable and secure contracts for energy delivery.

This is not surprising, since E.ON Ruhrgas is the only non-Russian company with a seat on Gazprom's board of directors and is part of the Nordstream project, set to deliver more gas into Europe via the Baltic sea reducing the transit bargaining abilities of the Baltic states, as well as Poland, Belarus, and Ukraine. Eni has also secured several long-term supply deals with Gazprom, as well as several asset purchases and swaps amid the auctioning of the defunct YUKOS oil company. Europe's energy companies have been very welcome in giving up operations in their own countries for anticipations of entry into the Russian market.

Russia's long-term success in being the exclusive supplier of energy to Europe (currently 30% for oil and 50% for natural gas) is rooted in the interconnection of the interests of European and Russian corporate giants who will lobby extensively future supply projects from Russia with the hope of taping Russia's oil and gas fields. These fields, such as Kovytka, Sakhalin, Shtokman, and others, despite government attempts to reduce foreign ownership will require heavy foreign participation, a lucrative source of revenue for the European energy giants, and something that they will fight for.

Britain's chances of becoming once again a self-sufficient country in terms of energy needs are slim, as nuclear power stations face mighty environmental hurdles and green energy has not yet been implemented in a major world economy to sustain more than 20% of energy needs. Norway by itself has little capacity to provide the deficiency, and the Middle East and North Africa hardly seem that more reliable suppliers than Russia. The hard-pressed lobbying of German, French, and Italian energy companies gives the confidence to say that any lack for Russian energy demand from the British Isles will be gladly made up by the rest in the EU.

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