How "Reliable" is Europe's Plan to Import Non-Russian Gas Supplies?

A Simple Plan…Foiled

Although Europe only relies on Russian gas exports for around 25% of the continent's total gas consumption, and this figure is only supposed to increase by a few percentage points over the next 25 years, European policymakers have got it into their heads that Europe is "over-dependent" on Russian gas supplies, and thus any further reliance on Gazprom is necessarily negative. The Russian gas giant's price disputes with Ukraine and Belarus at the beginning and end of 2006, respectively, certainly drove home the question of Europe's energy security and the continent's dependence on Russian gas supplies, but while these disputes were mainly commercial in nature (albeit with a clear political context), the disputes were widely characterised in the Western press as Russia trying to use energy as a weapon to tighten its grip over its former Soviet neighbours. This mischaracterisation has then been propagated by European and American policymakers, with fears over Russia's intentions exacerbated by Europe's growing need for additional Russian gas supplies.

Thus, in the stereotypical European policymaker's view, the continent's growing dependence on Russian gas supplies is bad, Gazprom is unreliable as a supplier (despite 40 years of Russian gas exports to Europe, even during the Cold War), and supply source diversification is necessary. The European Union (EU)'s energy policy, as incoherent as it frequently is, seems to incorporate these basic precepts into its goals, with the consequent resolution to support any and all projects that could possibly bring non-Russian sources of gas supplies into Europe. The thinking goes that Europe can reduce its dependence on Russian gas by diversifying supply sources; hence, the Nabucco pipeline project, which would link Turkey to Austria but has no guaranteed suppliers, has received strong EU political support, even as the Nord Stream pipeline, which would connect Russia to Germany and open up a new supply corridor for Russian gas to Europe, has been met with lukewarm reactions in Europe outside of Germany, and increasingly hostile rhetoric from the Baltic and Scandinavian states.

Europe's goal of securing alternative gas supplies to offset the perceived unreliability of Russian gas exports to Europe has in the past few weeks experienced a series of setbacks, however. Whereas Azerbaijan began exporting gas to Greece via Turkey in the second half of 2007, heralding the start of non-Russian gas supplies to the EU from the Caspian region, these gas supplies have been halted this month, a casualty of the growing feud between Turkmenistan and Iran. Turkmenistan, whose importance in the European gas supply chain was demonstrated for all to see when the Russia-Ukraine gas war in January 2006 broke out, has withheld gas exports to Iran since 30 December, ostensibly due to the need for pipeline repairs, but widely speculated to be due to a desire to force Iran to pay more for gas supplies (see "Related Articles"). A concomitant cold snap in Central Asia, Iran, and Turkey that has spiked gas demand for heating has prompted Iran to halt its own gas exports to Turkey, which has then halted the transit of Azerbaijani gas supplies to Greece in an effort to meet Turkey's own needs. The fallacy that Central Asian and Middle Eastern gas supplies to Europe via the proposed Nabucco pipeline would somehow be more "reliable" than Russian gas exports has thus been exposed.

Nabucco on Life Support?

If the Turkmenistan-Iran episode and its downstream effects on European energy security has not sufficiently debunked the myth that Nabucco would ensure more reliability in Europe's gas imports, then Gazprom's recent moves to build political and commercial support for the rival South Stream pipeline may have proven a nail in the Nabucco project's coffin. Although policymakers are quick to note that the two pipelines are not necessarily in competition, and that both could increase Europe's energy security, the progress that the Russians have recently made on the South Stream project, together with the continued floundering of the Nabucco project, may spell the death knell for Europe's efforts to diversify gas supply sources in south-eastern Europe.

Vladimir Putin's deal to secure Bulgaria's participation in South Stream last week marked a major coup for the outgoing Russian president in ensuring this project, which would link Russia to Bulgaria via the Black Sea, will go ahead. Furthermore, the decision by the Serbian government to accept Gazprom's offer for NIS as part of a package in which Gazprom will build gas storage facilities in Serbia and route the South Stream pipeline via Serbian territory brings the South Stream project closer to fruition. At least 10 bcm of the 30 bcm planned capacity of the South Stream pipeline will transit Serbian territory, and the storage facilities will make Serbia into an effective regional "hub" for Gazprom in the Balkans, allowing the Russian gas giant to more easily boost supply during times of peak demand, thus reducing its own dependence on the Ukrainian pipeline system and reducing the uncertainty over whether extra gas pumped via Ukraine will actually reach Gazprom's consumers in the Balkans.

Outlook and Implications

In the meantime, the Nabucco consortium partners continue merely to haggle over which company to add as a sixth partner, with Turkey now expressing support for RWE, the German utility. Construction of the pipeline is still more dream than reality, and with no guaranteed supplies at this stage, the project is clearly struggling, even as EU political support continues to prop up the idea. The demonstration of just how unreliable Central Asian and Middle Eastern supplies can be in the current Turkmenistan-Iran dispute will surely send a shiver down the spines of EU policymakers and Nabucco supporters, while the prospect that Gazprom could even pump Azerbaijani gas via South Stream (reports have surfaced this month that the Russian gas giant is interested in buying gas from the Phase 2 development of Azerbaijan's Shah Deniz field) could mean the end for Europe's dream of opening up a new, non-Russian gas supply corridor from Turkey to the Balkans.

Of course, Gazprom has said it could pump Central Asian as well as Russian gas via South Stream into Europe (and presumably, any Russian purchases of Shah Deniz gas would be sent to Europe via South Stream as well), but European policymakers will be less than satisfied if Europe receives non-Russian gas supplies that are still controlled by Gazprom. The Russian gas giant is doing what it feels is its part in improving Europe's energy security, boosting the security of supplies with the Serbia gas storage deal and moving towards opening a new supply corridor with the Bulgaria and Serbia agreements on the South Stream pipeline. Gazprom could thus reduce Europe's dependence on Ukraine—through which 80% of Russian gas supplies flow—as a transit state in the delivery of Russian gas, thereby making Gazprom more "reliable" as a supplier. At the same time, the unreliable supplies of gas from Central Asia and the Middle East have blown a hole in Europe's plans to increase dependence on gas from these regions in order to improve the continent's energy security. Diversification concerns aside, Gazprom is showing that it is not only a reliable supplier to Europe but it is also willing to take steps to improve the continent's energy security—even if Europe continues to question the nature by which Gazprom provides this security.

Related Articles

Serbia: 22 January 2007: Serbia Poised to Accept Gazprom Offer for NIS 

Serbia: 18 January 2008: Gazprom's Bid for Serbia's NIS Brings Pros and Cons for Europe

Bulgaria: 18 January 2008: Bulgaria Poised to Sign onto Russia's South Stream Project 

Turkmenistan: 9 January 2008: Is Turkmenistan Being Truthful About the "Operational" Reason for Halt in Gas Supplies to Iran?

Iran: 2 January 2008: Chain Reaction Seen in Gas Supply Reduction from Turkmenistan to Iran, and from Iran to Turkey

Turkmenistan: 31 December 2007: Turkmenistan Reportedly Cuts Off Gas Supplies to Iran

Russia: 21 December 2007: Caspian Gas-Pipeline Agreement Signed

Russia: 20 December 2007: How Russia Can Make More Gas Available to Europe

Turkey: 17 July 2007: Iranian Gas Deal Marks Turkish Response to Russian Bypass Challenge

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