Europe’s Energy Wars: Tankers Against Pipelines (I)

Europe’s Energy Wars: Tankers Against Pipelines (I)

European gas market competition has entered a new phase. Russia’s Gazprom is gradually increasing its supplies to Europe. The company is looking for new ways to deliver gas along north-south routes. The US, Russia’s main geopolitical rival, has rushed to export liquefied natural gas (LNG) transported by sea.

A US tanker carrying Louisiana-produced LNG is expected to reach the Portuguese Port of Sines on April 26. This is the first US gas export to the European market.

«It's the start of the price war between US LNG and pipeline gas», said Thierry Bros, an analyst at Société Générale.

The debates over Russian gas pipelines have become an element of political rivalry, writes Polish Biznes Alert.

There is no reason to disagree with the Polish outlet.

In all wars, including price wars, the ability of a belligerent to effectively use the available resources is not the only factor that decides the outcome. It’s important to build alliances. What are US and Russia’s chances of winning this virtual war?

Moscow can increase the supplies to Europe right now. It’s an obvious advantage. Russian gas giant Gazprom increased natural gas exports to Europe and Turkey between Jan. 1 and April 16 by 22.6 percent compared to the same period a year earlier, the company quoted its CEO Alexey Miller as saying on April 18.

According to him, the exports to Austria increased by 24.7%, to the United Kingdom – 162,3%, Germany – 21.3%, Italy – 16%, the Netherlands – 115%, Poland – 35.7% and France – 50.2%. Austria’s geographic position and the availability of developed infrastructure, including Gas Hub Baumgarten (Central European Gas Hub), make this country stand out as a special case. It occupies a key place in the European energy system.

In January 2016, Gazprom’s exports to Austria increased by 76, 2% compared to the same month last year. The supplies also grew in 2015. The gas deliveries rose by 11.5 per cent compared to 2014.

«Russia provides 25 percent of Europe’s gas»says Mr Hubertus Bardt, energy expert at the Cologne Institute for Economic Research. «We wouldn’t make it without Russia. But they need European money. They have proven to be a very reliable  supplier, even in Cold War times. Without selling gas Russia’s whole economy and its social security would collapse», the expert explains.

Russia has another advantage. It can build east-west, as well as north-south pipeline routes to Europe. For instance, discussions are under way about the possibility of Italy receiving gas supplies from «Nord stream 2» via Germany, the Czech Republic and Austria. The project is planned to follow the route laid down by the Nord Stream pipeline and running through the Baltic Sea from the St. Petersburg region (Russia) to Baltic Coast in north-east Germany. The pipeline will traverse the territorial waters of five countries, namely Russia, Finland, Sweden, Denmark and Germany. «Anyway, they now take gas from Baumgarten, if we build up to the Baumgarten advanced through the North, it will be an additional opportunity, but not excluding the southern direction. It’s just diversification of routes», said Russian Energy Minister Alexander Novak.

The Nord Stream-2 does not exclude Russia’s participation in Poseidon project, a high-capacity undersea cable system, which will connect the Greek and Italian natural gas transportation systems.

Gazprom, Italian Edison, and Greek DEPA signed on February 24 a Memorandum of Understanding on natural gas deliveries across the Black Sea from Russia via third countries to Greece, and then from Greece to Italy in order to establish a southern route to deliver Russian natural gas to Europe.

There is one more advantage to tip the balance in Russia’s favor – the minimization of collateral political and business risks.  

Mario Mehren, the Chairman of the Board of Executive Directors of Wintershall, said figuratively that the Baltic Sea is the best transit country. This assertion is based on the experience with Nord Stream 1. According to him, his company takes on the responsibility because it believes that Nord Stream 2 project is economically viable. Its implementation is very important for energy sector. In some countries it comes under criticism. But priority should be given to direct gas supplies at optimal price. This is the goal, Mr Mehren emphasized in his comments on the Russian natural gas transportation project to link Russia with Germany and other member-states of the European Union.

Moreover, there are indications that some countries, like Poland, that have been critical of Nord Stream, may soon change their position. Warsaw is clandestinely reviewing its stance on Nord Stream 2. According to Wintershall, Poland has already submitted its own application for an increase in gas supplies when Nord Stream 2 becomes operational.

There is another factor worth to mention. Europeans, especially businessmen, are fed up with the anti-Russian policy of Brussels. The sanctions imposed on Moscow have failed to change Russia’s external and internal policies. According to statistics, the Russia-EU trade turnover has been reduced by 39% during the first ten months of 2015. The EU exports to Russia have dwindled by 43%. Export from Germany went down 40%, from France – 48%, Italy – 38%, and Finland – 45%.

Under the circumstances, many Europeans view the policy of tightening the screws on Russia when it comes to energy deals as senseless obstinacy to hurt Europe and benefit the United States looking for markets to sell its liquefied natural gas.

(to be continued)

Tags: Gazprom  Nord Stream  Energy