The Power of the Pipes

BERLIN/MOSCOW/BEIJING (Own report) – The privileged German-European access to Russian natural gas could be lost, is the warning, as the battle over the “Nord Stream 2” pipeline persists. According to a recent analysis published by Oxford University, western sanctions, imposed on Russia in 2014, have encouraged Moscow to seek alternative markets for its resources. China, in particular, plans to purchase large amounts of Russian natural gas. The first pipeline is scheduled to go into operation this year. A second pipeline – tapping the fields currently supplying gas exclusively to Europe – is in planning. The same applies to new Russian liquefied gas projects. In the future, “European customers” will most likely have to compete in Russia with “Asian customers,” the Oxford University analysis predicts. Instead of forcing Moscow to its knees, the sanctions could put an end to Berlin’s privileged access to Russian natural gas and if the “Nord Stream 2” fails, it could further worsen the EU’s position.

Privileged Access

Major economic and political decisions Moscow had made in the 1990s and during the first decade of the millennium had provided Germany and the EU privileged access to Russian gas. At the time, Russia obviously had an economic interest in expanding its supply of gas to the EU – because it could build on the already existing infrastructure, Europe’s geographical proximity as well as the growing consumption within the EU. Russia’s 2004 attempt to export gas to China had initially been a failure, because the People’s Republic of China was basically able to cover its consumption demands through domestic production and had already envisaged gas imports from Turkmenistan in view of satisfying its growing demand. Russia’s gas relations with the EU had also helped Moscow in its effort to intensify cooperation with the West. After President Putin took office, efforts were concentrated on alliances with the EU and its major power, Germany – providing the Wintershall energy company direct access to Russian gas fields.[1] Moscow’s striving for closer German-Russian cooperation also launched the “Nord Stream 1” and “Nord Stream 2” pipelines.[2]

Russia’s Dependence

This, however, brought Russia into a risky dependence on its European sales market. According to an analysis, published in November 2018 by the Institute for Energy Studies of the University of Oxford, 34 percent of Gazprom’s total revenues in 2017 were derived from exports to the European market. Approximately 4.2 per cent of total budget revenues come from taxes on gas exports to foreign – mainly European – countries.[3] Losses could be serious, if Russia’s exports to Europe significantly suffer. In view of the importance of its natural gas exports for its economic survival, Western aggression in the Ukraine conflict – particularly the EU and US sanctions – have driven Moscow to seek new customers to “provide a geo-political balance for its more strained relations in the West,” the author of the analysis notes.

The Power of Siberia

In spite of the complications and historical encumbrances to relations between Russia and China, Moscow’s first choice was Beijing. Once again, economic and political reasons were equally decisive. The People’s Republic of China, whose demand for natural gas had rapidly been increasing, could no longer be satisfied by its domestic production. China has thus become one of the most lucrative natural gas markets ever.[4] From Moscow’s perspective, gas supplies to the People’s Republic of China seem to also be safe from possible western boycotts. The agreement in principle on comprehensive natural gas supplies, signed by Moscow and Beijing in May 2014, was the first step, followed by the official beginning of construction of the “Power of Siberia” pipeline, September 1, 2014 in Jakutsk. Construction has been accelerated because Chinese consumption is growing faster than expected. The pipeline is scheduled to begin operation this December. Initially an annual delivery of 38 billion cm³ (bcm) had been planned, however, now an annual five – ten bcm is in discussion. Thus, Moscow will become increasingly independent of its European gas exports.

West Siberia’s Gas Reserves

No Longer the Monopsony Buyer

Overestimating One’s Own Power

Full article: The Power of the Pipes (German Foreign Policy)

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