Vocal Europe: Will Donald J. Trump’s election as President of the United States increase the dependence of Central and Eastern European countries on Russian gas, given his views about international relations in Europe as stated during the election campaign?
Robert M. Cutler: Trump’s election will have little effect upon the dependence of Central and Eastern Europe on Russian gas. Only the EU can increase this dependence. They have already taken a step in this direction by approving an exception to the rule that the OPAL pipeline can be filled only 50 per cent by a single supplier, by allowing Russian gas to reach 80 per cent.
At the same time, the Nord Stream 2 pipeline project, still being hashed out despite an initial victory by the Polish anti-monopoly committee against it, obviously contravenes the Energy Union principle of diversifying sources of energy supply. If anything, the eventual export of American liquefied natural gas (LNG) provides the Central and Eastern Europe countries a potential alternative source of supply, either to take or to use for bargaining leverage against Russia.
VE: What are the chances for the Turkish Stream pipeline? Would its construction be to Europe’s advantage?
RC: Now that Turkey’s president Recep Tayyip Erdogan has dropped all demands against his Russian partner that had delayed its implementation before their bilateral relations froze after the shoot-down of the Russian pilot in November 2015, anything is possible. Russia now seems intent on building the first string of Turkish Stream by the end of the decade. However, it would require some re-design. The planned undersea pumping stations are based on old technology dating from the South Stream era, no longer produced. New technology may fall under current sanctions against Russia.
Cost is also an issue, but the Kremlin is doing its best to ignore this. Gazprom is lending capital to its subsidiary constructing Turkish Stream. To lay a single string of the pipeline could cost up to 5 billion euros. According to the bilateral agreement with Turkey, Russia can seek third-party financial participation in the second string, suggesting that this is in fact necessary; and some estimates suggest that the state budget Reserve Fund will run out sometime next year. In fact, Turkish Stream is not commercially viable, and this would normally halt the project, but Russia has been known to implement non-commercial projects for geopolitical purposes. The Blue Stream pipeline from Russia to Turkey under the Black Sea, which was woefully underutilized until late last decade, is a case in point. At the same time, it is to be anticipated that Russia attempts to use this second string as bait to lure Bulgaria geopolitically by playing to the latter’s aspirations to become an important gas hub.
VE: It is one year since Ukraine ceased importing gas from Russia, and probably this will not change. Will Ukraine remain an important transit country for Russian gas after 2019?
RC: That is a very good question. In the end, the answer depends upon the quantity of natural gas that Europe seeks to buy. EU demand is projected to continue to decline, but imports will rise as European gas production will decline faster. Many detailed studies have been done of specific scenarios, depending for example on the status of the Nord Stream, OPAL and Turkish Stream pipelines. Part of the contour of the answer to your question is given by developments during 2016. For example, the cap on Gazprom utilization of the OPAL pipeline has been raised, and we can make an educated guess that a second Nord Stream pipeline will not be built within this time frame, whereas it has become entirely possible that Turkish Stream may see its first string completed by that date.
It is still not exactly possible to say whether or to what degree Ukraine will remain a transit country for Russian gas to Europe after 2019. However, calculations have been done combining different European demand scenarios and different pipeline construction scenarios. These suggest that the volume of Russian gas required by Europe after 2019, that non-Ukrainian pipelines at their maximum capacity would be unable transit, may range from 6 billion cubic meters per year (bcm/year) to 60 bcm/year. Under the scenario where the OPAL quota has already been raised, and assuming that one string of Turkish Stream is built, the volume of gas requiring transit after all non-Ukrainian pipelines have been filled varies from zero to 55 bcm/year. The variation is accounted for by the combination of level of European demand and commercial availability of liquefied natural gas (LNG) from non-Russian suppliers.
The above figures do not take account the still unbuilt Trans-Caspian Gas Pipeline (TCGP). As the TCGP’s anticipated volume is 30 bcm/year , it would seem prudent to proceed with the project. For this, the White Stream pipeline from Georgia to Romania under the Black Sea will also be required.
VE: On November 22, Gazprom announced that its gas exports to Europe had reached a new record high. What are the chances that the EU can diversify its energy supplies by accessing the energy resources of Caspian Sea region? What are the main obstacles to this?
RC: The Caspian Sea legal status is really the least significant of the problems. The supposed environmental concerns are also pretexts employed by Russia and Iran for opposing the project politically. If environmental concerns were ever a legitimate argument, the technical advances in the industry over the last 20 years (i.e. since the TCGP was first proposed for development by two American firms in the late 1990s) have solved any potential problems. The engineering is no problem at all, as the undersea route was surveyed and laid out back then. Likewise, the dispute with Azerbaijan over the Serdar/Kyapaz field is no longer an obstacle to their cooperation.
The chances for the TCGP are now better than they have been in two decades. There have recently been favourable developments in the negotiations amongst the European Union, Turkmenistan, and transit-country Azerbaijan. The undersea White Stream pipeline project (from Georgia to Romania) is still viable and a necessary component of the Southern Gas Corridor for bringing Turkmenistan’s gas to the EU. The next year or two may be decisive.
The TCGP has always been slated for 30 bcm/year. Smaller quantities of gas could be transmitted from the offshore stranded gas developed by Petronas, but Turkmenistan’s president Gurbanguly Berdymuhamedow does not want to do that. He counts most upon large quantities combined with security guarantees, because it is not in his interest to antagonize Russia by exporting small quantities only. He also needs this, because he recognizes the vulnerability of depending so heavily on exports to China, as once was the case for exports to Russia.
VE: What are the chances for an increased competition between Russia and China for energy resources in the Caspian Sea region?
RC: Today China has many more options for energy imports besides Russia than even five years ago. China will deepen further its energy relations in Central Asia, and Russia will be increasingly crowded out in the energy field. Uzbekistan remains relatively ensconced in the Russian energy sphere, but Tashkent has been seeking to escape this dependence through not only Chinese but also South Korean and Malaysian participated in energy exploration and development. China’s dominance of Turkmenistan’s energy sector is generally well known, but China has been present in Kazakhstan’s energy sector much longer than in Turkmenistan’s. Kazakhstan’s geography makes it even more subject to China’s geo-economic influence. Although Astana seeks to avoid excessive dependence on any one partner, but China’s profile in Kazakhstan grows ever stronger.
China’s energy balance-sheet and foreign investment strategy drive it to do whatever is necessary to help Central Asian countries develop energy resources for export to China. With capital from China, there come Chinese workers and methods of industrial organization; this has already happened in parts of Kazakhstan. Such developments lead to anchoring Chinese geo-economic and geopolitical influence in Greater Central Asia and East Central Eurasia over the long term. Russia will nevertheless remain the principal military-strategic power in the region, thanks in part to the institutionalization of the Collective Security Treaty Organization, to which China does not belong.
VE: How are the Russian-Iranian relations developing in the South Caucasus?
RC: Russia and Iran are reasserting their historical influence in the South Caucasus but are today doing so more from the standpoint of cooperation than of contradiction or conflict. The voluntary withdrawal, indeed self-abnegation, of American influence from the region over the better part of a decade is responsible for this evolution.
Armenia is finding out that its overwhelming dependence on Russia puts it at a relative disadvantage when Russia’s relations with other South Caucasus countries improve. It had refused even to consider Turkey’s proposals for trilateral South Caucasus cooperation, with Turkish facilitation and participation in its materialization, made at the beginning of the present decade. Russia’s relations with Georgia are more regular than they have been for most of the last decade, despite Russia’s continued occupation of South Ossetia and Abkhazia.
But Azerbaijan’s situation is perhaps most indicative. Deprived of the American support that it enjoyed for 20 years after the disintegration of the Soviet Union, Baku has been seeking to adapt to the demands of its neighbours while maintaining some margin of diplomatic manoeuvres.
For example, in mid-2016 Azerbaijan hosted a trilateral meeting where its foreign minister and those of Russia and Iran established a permanent institutional framework for coordinating ministerial-level cooperation in the energy and transportation sectors. The three presidents’ December 2016 Baku Declaration formalizes this cooperation at the highest level. Even Iran, which had been seeking since the 1990s to endanger and even overthrow the government in Baku, is keen to develop bilateral as well as trilateral cooperation and is preparing a comprehensive road map in this sense.
*Dr. Robert M. Cutler is Senior Researcher, Institute of European, Russian and Eurasian Studies, Carleton University, and Fellow, Canadian Energy Research Institute. Based in Montreal and Brussels, he serves on editorial boards of a number of scholarly journals, is Chairman of the Montreal Press Club Board of Directors, and consults on energy security and geo-economics to think tanks, governments, NGOs, international institutions, and the international energy industry.