Russia-EU energy

By letting its Russian gas dispute drag on for two weeks, Ukraine has discharged a double-barrelled shotgun into its nether regions. Russia and the European Union have forceful incentives to back pipeline routes skirting round it, reducing transit fees that earn Ukraine $2bn a year. Russia’s reputation is further tarnished, too. Even so, three years after the first Ukraine gas shut-off, the EU has made limited progress in diversifying energy sources. Today’s talk is more of diversifying gas supply routes – and planned alternative pipelines tend to lead back to Russia.

The most advanced project is Nord Stream, under the Baltic Sea from Russia to Germany. Poland and other bypassed states say it threatens EU unity; Sweden voices environmental concerns. But the European Commission has made it a priority project, warming further to it after Russia’s conflict with Georgia, another energy transit state, apparently persuaded Brussels of the merits of direct pipelines. Gazprom’s consortium partners include Germany’s Eon Ruhrgas and BASF/Wintershall and the Netherlands’ Gasunie, with former German chancellor Gerhard Schröder, as chairman, lending clout.

The other arm of Gazprom’s pipeline pincer movement, South Stream, intended to bring gas across the Black Sea and Balkans, is progressing too. Gazprom has signed up Bulgaria and Serbia, and Italy’s Eni. Brussels is wary of South Stream as it competes with the EU- and US-backed Nabucco project, which aims to transport Caspian basin gas through Turkey – bypassing Russia. But concerns persist that Nabucco lacks gas. One possible source, Turkmenistan, has contracted most production to Russia and China; another, Azerbaijan, is being courted by Moscow. Nabucco says it may carry Russian gas – ironic for a venture seen as a way of bypassing Russia. Until it can develop other sources, the EU’s best option to avoid future shut-offs may be to deepen its partnership with the Bear.