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Russia Launches Full-Court Press For Energy Projects In Europe

  • Bruce Pannier

Italian Prime Minister Silvio Berlusconi (right) and his Russian counterpart, Vladimir Putin, confer during Putin's visit to Italy on April 26.

Italian Prime Minister Silvio Berlusconi (right) and his Russian counterpart, Vladimir Putin, confer during Putin's visit to Italy on April 26.

Russia is launching a new all-out offensive on the European energy market.

President Dmitry Medvedev and Prime Minister Vladimir Putin have spent the past several days on individual tours through Europe, securing new natural-gas contracts and partners for Russian-built pipelines, clarifying Russian claims to oil and gas reserves in the Arctic, and searching for clients ready to pay for Russia's nuclear-plant technology.

On April 27, Medvedev concluded a two-day trip to Oslo, where he and Norwegian leaders agreed on a plan to delimit their Arctic maritime border. The decision -- combined with recent melting of Arctic ice -- paves the way for the area to be opened for oil and gas exploration.

The deal is a long-awaited achievement for Russia. In 2008, Medvedev called the Arctic "Russia's resource base of the 21st century." Some energy experts estimate that up to 25 percent of the planet's oil and gas reserves lie beneath the Arctic's Barents Sea.

The major obstacle to gas and oil exploration has been lack of agreement over individual countries' sectors of the Arctic. Speaking on April 27 in Oslo, Medvedev praised progress in removing the obstacle of delimitation with Norway, and said Russia would work together with the Scandinavian country to consider options for exploration and development of the Barents' energy resources.

"This has been an issue, frankly speaking, that has been complicating our relations," he said. "Today we agreed on the regulation of this issue in order to close it."

'This Is Obvious'

Putin, meanwhile, was in Italy on April 26, meeting with his counterpart, Silvio Berlusconi. While in Italy, Putin spoke to the press about the South Stream gas-pipeline project, which aims to bring some 63 billion cubic meters (bcm) of gas annually from Russia across the Black Sea to Bulgaria, where the pipeline will split, with one branch line heading toward Austria and the other toward Italy.

Russian President Dmitry Medvedev (left) and Norway's King Harald during a welcoming ceremony in Oslo
Putin noted the Italian link was a big part of his reason for being in Italy.

"As concerns South Stream, the main market is northern Italy. This is obvious," Putin said. "And that is the reason we are here actively working with the Italians."

Italy's Eni is already a partner in South Stream. And, as Putin announced, another big European company is about to join the project, France's Electricite de France (EDF).

"We agreed [the Russian and Italian sides] that French partners will enter the project. Electricite de France has agreed and expressed a desire to take a 20 percent stake [in the project]," Putin said. "In June this year in St. Petersburg, the appropriate agreements on this will be signed."

Putin later explained that Gazprom and Eni will each sell 10 percent of their respective shares in the project to EDF.

'Pointless' Exercise

Putin's visit to Italy followed his success in Austria, where he was on hand to witness the signing of agreements on Austrian participation in South Stream. Austria's Baumgarten gas hub is the final destination of both the northern branch of South Stream and the European Union-backed Nabucco gas-pipeline project.

Nabucco was designed to circumvent Russia and was promoted as an attempt to end the EU's near-complete dependence on Russian gas. So Putin's weekend deal in Austria was seen as a triumph for the Russian prime minister, who used the occasion to once again question Nabucco's viability.

"Building a pipeline without supply contracts is pointless and extremely dangerous," he said.

Other energy observers have also questioned whether Nabucco -- a 3,300-kilometer-long pipeline meant to bring 31 bcm of gas from the Caspian Basin and Middle East countries to Baumgarten -- would ever have enough contracts with supplier countries to fill the pipeline.

Putin argued that, by contrast, his country can guarantee its own demand "and that of essentially all our clients in Europe for the next 100 years." He said it would be possible to increase the amount of gas shipped through South Stream.

Nabucco pipelines at the Baumgarten gas hub
Putin also said it would be possible to increase the amount of gas delivered through two other Russian pipelines to Europe. One is Nord Stream, which aims to carry some 55 bcm across the Baltic Sea to Germany and from there further into Europe via other pipelines. The other is Blue Stream, which brings some 16 bcm of Russian gas across the Black Sea to Turkey.

Growing Momentum

The full effect of the Russian network of new pipelines has yet to be felt, but momentum is growing. Blue Stream is already operational. Nord Stream is due to come online in 2011. Gazprom chief Aleksei Miller was with Putin in Austria and said South Stream was expected to start operations in December 2015.

Russian progress in developing and selling hydrocarbon resources was not the only recent success in Moscow's advance on the European energy market. While in Italy, Putin also noted the Russian energy company Inter RAO UES and Italy's Enel were signing an agreement to build the Baltiisk nuclear power plant near the Russian city of Kaliningrad.

The Baltiisk plant should generate enough electricity to serve local needs and still have plenty to export to neighboring countries. That follows an agreement by Ukraine's government on April 21 to partner with Russia's Atomstroyeksport to finish the third and fourth reactors at Ukraine's Khmelnitsky nuclear power plant.

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