ENERGY RING

More and more new energy projects in which Russia is playing the main role have been reported regularly in the media over recent weeks. Moscow considered a vital success the Balkan energy summit in the Croatian capital, attended by the leaders of the Balkan states and representatives of the EU and OPEC. First, Russian President Vladimir Putin discussed plans to cooperate on energy with the countries of the region. Second, as a result of the talks Bulgaria announced that it is joining the South Stream pipeline, which will be lain across the bottom of the Black Sea. 

It was also decided that Russian oil will enter the new Pan-European pipeline from Romania to Italy. Gazprom and Italy's Eni signed a memorandum on construction of the Black Sea bed pipeline in Rome. The pipeline, South Stream, will carry Russian gas to southeastern Europe - to Bulgaria and onwards via one branch through Romania and Hungary to Austria and via another through Greece to southern Italy. The pipeline is to have a capacity of 30bn cubic metres per year.

Gazprom Deputy Chairman Aleksandr Medvedev described the Balkan summit as productive. "The summit acquires special significance with the agreement between Gazprom and Eni. The countries of southeastern Europe expressed their readiness to cooperate to ensure energy security and agreed on the need to stop politicizing the issue," Medvedev told journalists, stressing that South Stream is not targeted against any other projects. He also did not rule out the possibility that other parties may join South Stream, but they will be involved only in the overland network of gas pipelines. The section that crosses the Black Sea bed will belong 50-50 to Gazprom and Eni. The overall length of the Black Sea section of the South Stream gas pipeline network will be around 900 km, and the maximum depth more than 2,000 m. There will be two different routes for the land section from Bulgaria: one to the northwest and one to the southeast.

The summit also reached agreement on construction of a Pan-European oil pipeline (from Constanta to Trieste). It will pass from Romania through Serbia, Croatia and Slovenia to Italy. This route will be connected to the already constructed Trans-Alpine oil pipeline. The project is to get under way in 2009 and come into operation in 2011-12. The throughput capacity is predicted to be 60-90m tonnes of crude per year, the overall length to be more than 1,800 km and the cost 3bn dollars. Oil will be supplied by companies in Russia, Azerbaijan, Kazakhstan and Turkmenistan.

However, the main topic was South Stream and there have already been quite a lot of commentaries on the subject in the Russian press: as a result this supposedly leaves the Nabucco project to build an oil pipeline bypassing Russia "hanging in the air" "Under the cloak of European diversification competitors are often just lobbying for their own interests. And they are right to be worried," Aleksandr Medvedev said smugly. "The Nabucco project is being built bypassing Russia. The USA supports it. South Stream, which bypasses Turkey, is practically a carbon copy. Moreover, Nabucco is to take Central Asian crude and now that Russia has reached agreement with Kazakhstan and Turkmenistan on a Caspian coast pipeline, Nabucco could stand empty, that is, if it is even built. The outsiders are upset of course."

Experts think that it is still too soon to write off the Nabucco project, however, primarily because for all Putin's assurances that over the past 40 years Russia has not once broken its contractual obligations, Moscow has not managed to dispel doubts about the reliability of supplies, including in relation to political risk. The Russian media happily ignored the statement by the leaders of Albania, Bulgaria, Bosnia and Herzegovina, Macedonia, Romania, Serbia, Slovenia and Montenegro that energy resources should not be used as a political tool: "Energy is a commodity that should be accessible to all under market conditions on comprehensible and transparent terms," says the document adopted at the end of the leaders' meeting. Moreover, Europe is hardly likely to forget the events of winter 2005-06 when Russia several times suddenly inflated prices for gas for the "disloyal" states in the post-Soviet area. When Ilham Aliyev said in an interview with Ekho Moskvy radio station that Moscow had changed the rules of the game on the hoof and revised their contractual obligations to supply gas to Azerbaijan, it wasn't only Baku that drew conclusions from this. France's Le Temps warned hot on the heels of the Russian energy outburst, "Moscow and, in this case, its leading national producer Gazprom will not be able to keep their promises to supply gas as soon as 2010. Since the Kremlin took the energy sector back into its own hands, Russia has been producing less and less oil and gas. As for new deposits in Siberia, the Kremlin does not have either the necessary technology or capital to exploit them. BP's recent removal from exploiting Siberian gas fields will only exacerbate what the IFRI (French institute for international relations) expert Christophe-Alexandre Paillard calls leadership by energy suicide." 

"Russia's energy balance is in fact catastrophic and worsening by the day. Gas losses in the pipeline network or pure theft are as much as 30 per cent of the gas extracted; the gas demands of their own electricity producers are already not met and in some cities a gas distribution system has been introduced in an attempt somehow to ensure gas supplies to Western Europe."

When Azerbaijan's State Oil Company SOCAR announced its plans to export its own gas, most of the Russian media paid attention, while the Vremya Novostey newspaper said directly: "Baku is taking Greece from Gazprom." The paper went on to say that, "The State Oil Company of Azerbaijan has, as promised, begun to supply gas from the Sah Deniz field to Turkey and in a month plans to start selling part of the gas to Greece's DEPA (Public Gas Corporation). True, they still have to agree with their Turkish colleagues who have a contract to buy a significant volume of Azerbaijani gas." "The sides will probably be able to find a compromise and it is almost certain to pose problems for Gazprom in selling gas in Turkey and Greece in the next few years. Russian gas is significantly more expensive, almost twice as much, as the gas offered by SOCAR," Novoye Vremya concluded. Moreover, Central Asia is making it clear that it is not writing off "trans-Caspian" transport routes, which is making Moscow uncomfortable.